SENATE BILL REPORT

HB 2901

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

Senate Hearing Date(s):February 20, 1990; February 22, 1990

Majority Report:  Do pass as amended.

      Signed by Senators von Reichbauer, Chairman; McCaslin, McMullen, Matson, Moore, Rasmussen, Smitherman.

Senate Staff:Benson Porter (786-7470)

                  February 22, 1990

Senate Committee on Ways & Means

Senate Hearing Date(s):February 26, 1990

Majority Report:  Do pass as amended by Committee on Financial Institutions & Insurance.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Fleming, Gaspard, Hayner, Johnson, Lee, Moore, Newhouse, Niemi, Saling, Smith, Warnke, Wojahn.

Senate Staff:Terry Wilson (786-7715)

                  February 27, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 26, 1990

BACKGROUND:

In 1971, the Legislature adopted the Washington Life and Disability Insurance Guaranty Association Act (WLDIGA).  The act requires every life and disability insurance company that is authorized to do business in Washington to be a member of the association.  The association pays certain kinds of policyholder claims of insolvent life and disability insurance companies.  Claims are paid from funds collected 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 up to statutory maximums 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.

Certain types and amounts of policyholder claims against an insolvent insurance company are not covered by the WLDIGA.  For example, a variable life or variable annuity policy is not covered by the association.  A variable policy is one in which benefits vary depending upon the investment performance of the company.  In addition, 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.

The act also establishes limitations on the amount payable on certain claims.  Life insurance and annuity death benefit claims are limited to $300,000 for each policy issued to the claimant.  For example, even if the claimant has a life insurance policy with a half million dollar death benefit, the claimant can only receive $300,000 from the association.  However, there is no limit on the amount that can be claimed for other types of benefits.  For example, if the claimant has a half million dollar annuity policy paying monthly benefits, the claimant can obtain the full amount.  Similarly, health insurance benefits are not limited in amount.

SUMMARY:

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

The association will no longer cover the claims of nonresident 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 defined as those contracts in which the benefits cover a group collectively except to the extent that benefits are guaranteed to a particular member of the group.  The association's liability for unallocated annuity contracts is limited to $500,000.

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.  In addition, the association is not liable for any benefits promised under an unallocated annuity contract that is not issued to or in connection with a specific employee, union, association of natural persons benefit plan, or government lottery.

The accounts established by the association to pay benefits are modified to permit certain new subaccounts and to allocate funds among claims when the maximum assessment is insufficient to cover claims.

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.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

SUMMARY OF PROPOSED SENATE FINANCIAL INSTITUTIONS & INSURANCE AMENDMENT:

The association's liability for unallocated annuity contract is $5 million rather than $500,000.

For purposes of determining the total of all assessments, the calculation shall consider an insurer's average premium received in this state during the three calendar years preceding the entry of a liquidation order.

Senate Committee - Testified: FINANCIAL INSTITUTIONS & INSURANCE:  Basil Badley, ACLI (pro); Scott Jarvis, Insurance Department (pro); Mike Kapphahn, Farmers Insurance (pro)

Senate Committee - Testified: WAYS & MEANS:  Basil Badley, ACLI and HIAA (pro)