FINAL BILL REPORT

HB 2901

                                   C 51 L 90

BYRepresentatives Dellwo, Chandler, P. King, Baugher, Nutley and Winsley; by request of Insurance Commissioner

Modifying the statutes pertaining to the Washington life and disability insurance guaranty association.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions & Insurance and Ways & Means

SYNOPSIS AS ENACTED

BACKGROUND:

In 1971, the Washington State Legislature created the Washington Life and Disability Insurance Guaranty Association (WLDIGA).  Every life and disability insurance company which is authorized to do business in Washington is required to be a member of the association.  The association pays certain kinds of claims of policyholders of insolvent life and disability insurance companies.  Money to pay these claims comes from the other life and disability insurance companies doing business in Washington.

When a life or disability insurance company is liquidated, all of the other life and disability companies must contribute money to pay claims of the liquidated company. The association calculates each member company's contribution to the guaranty fund based upon the amount of insurance the member sells in Washington.  If these contributions are not enough, the association assesses the members again each year until there are sufficient funds to meet policyholder obligations.  The amount contributed by a member insurer to the guaranty fund is gradually deducted from state premium taxes over a period of 10 years.

Not all types and amounts of policyholder claims against an insolvent insurance company are covered by the WLDIGA.  Policies issued by domestic life and health insurers are covered by WLDIGA whether or not the claimant is a Washington resident.  However, if the policy was issued by a foreign or alien insurer, the claimant must be a Washington resident either when the policy was purchased or when the company is liquidated.  If the life or health insurance is part of a group policy, the claimant must be a resident when the insurance company is liquidated.

Life insurance and annuity death benefit claims against WLDIGA are limited to $300,000 for each policy issued to the claimant.  However, there is no limit on the amount that can be claimed for other types of benefits.

The WLDIGA can go to court and ask either for a modification of the terms and benefits of a policy or for an adjustment in premiums required to keep a policy in force. These adjustments are usually necessary to convince another insurer to assume the policies and obligations of the insolvent insurer.

SUMMARY:

The Washington Life and Disability Insurance Guaranty Association Act is amended.

The association will no longer cover the claims of non-resident policyholders.

The amount the association will pay for benefits claimed from an insolvent insurer is increased from $300,000 to $500,000 for death benefits. Previously unlimited liability for disability and annuity benefits is limited to $500,000. In addition, the limits apply per person rather than per policy.

A new distinction is created between allocated and unallocated annuity contracts.  Unallocated annuity contracts are those in which the benefits cover a group collectively except to the extent that an insurer has guaranteed benefits to a particular member of the group.  The association's liability for unallocated annuity contracts is limited to $5 million.

The association is not liable for any benefits promised under an unallocated annuity contract issued to an employee benefit plan protected under the federal Pension Benefit Guaranty Corporation or promised under an unallocated annuity contract which is not issued to or in connection with a specific employee, union, association of natural persons benefit plan, or a government lottery.

The accounts established by the association to pay benefits are modified to permit certain new subaccounts and to permit the transfer of funds among accounts.

The association is permitted to charge reasonable interest for delinquent payments of assessments to the association by member companies.

The amount the association may charge member companies for general administrative expenses is increased from $50 to $150.

The rate at which a member company may claim a credit for assessments by the association against premium taxes is accelerated from a 10 year to a five year write-off period.

VOTES ON FINAL PASSAGE:

      House 94   0

      Senate    44     1 (Senate amended)

      Senate    47     0 (Senate amended)

      House 94   0 (House concurred)

EFFECTIVE:March 14, 1990