SENATE BILL REPORT

SB 5411

BYSenators Moore, Metcalf, Vognild, Sellar, Bender and Newhouse

Regulating fraternal benefit societies.

Senate Committee on Financial Institutions

Senate Hearing Date(s):February 3, 1987

Majority Report:  Do pass.

      Signed by Senators Moore, Chairman; Bender, Vice Chairman; Bottiger, Fleming, McDermott, Metcalf, Pullen, von Reichbauer.

Senate Staff:Phil Sorensen (786-7470)

                  February 20, 1987

AS PASSED SENATE, FEBRUARY 20, 1987

BACKGROUND:

A fraternal benefit society is a not-for-profit organization which supplies life insurance and other benefits to its members.  The societies have a representative form of government and operate on a local lodge system.  The fraternal may only exist for certain specified purposes.

The bulk of the fraternal chapter of the insurance code was enacted originally in 1911.  In 1947 a new fraternal code, based essentially on the 1911 act, was adopted into law.  Since that time various sections of the fraternal code have been amended so that the code reflects the uniform fraternal code that has functioned in some 26 states.

In 1983 a model fraternal code was adopted by the National Fraternal Congress of America.  The new code had been enacted, with some deviation in seven states.  Currently there are approximately 50 fraternals active in the state; few, if any, are domestic.

SUMMARY:

Enactment of the model code will repeal the fraternal code as it now exists.  Many of the provisions of the existing code will remain essentially unchanged, although there is a restructuring of the sections and use of new terminology.

Substantive changes include:  The giving of clear authority to fraternals to own subsidiary corporations; the ability of fraternals to establish separate accounts as necessary to offer variable life insurance and variable annuities; the benefit authority of fraternals will remain on a constant par with commercial life insurers; and, the extension of consumer protections of the insurance code to fraternals. The juvenile section of the act is reorganized.  The benefits section of the model code is broad enough to cover benefits for members, whether they be juvenile or adult.

The bulk of the remaining changes deal with the formation of new domestic societies.  The bond and advance premiums necessary to form a new domestic fraternal society are dramatically increased.

Fiscal Note:      none requested

Senate Committee - Testified: Rick Slunaker, National Fraternal Congress of America; David J. Larson, Lutheran Brotherhood; Lloyd J. Ostlund, Lutheran Brotherhood Consultant