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09/21/2019 03:39 AM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20190&cosponId=28782
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House of Representatives
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: March 13, 2019 11:48 AM
From: Representative Anthony M. DeLuca and Rep. Tina Pickett
To: All House members
Subject: Common Sense Regulation of Fraternal Benefit Societies
 
Fraternal benefit societies (fraternals) are not-for-profit membership organizations that help secure their members’ financial future by providing them a variety of life insurance and retirement income products. Fraternal members share a common bond such as faith, ethnicity, gender, occupation, or shared values and operate through a system of local chapters that combine to form one of the most cost-effective grassroots volunteer networks in the nation.

There are more than a dozen fraternals domiciled in Pennsylvania with 493,000 members, more than any other state. These organizations use the proceeds from their financial services operations to help their members improve the quality of life in the communities where they live and work by facilitating volunteerism and providing direct financial assistance to programs and projects that reflect their members shared values.

Under existing provisions in the Insurance Code, fraternals are authorized to offer a limited variety of insurance products to members - primarily life and annuity products. And while all of these organizations are currently financially sound, an increasingly competitive insurance marketplace and a more complex regulatory environment, may present some societies with significant financial challenges in the future.
These amendments to existing law enhance regulatory oversight of fraternal solvency and mitigate the potential for future insolvencies by facilitating mergers with other fraternals or insurers (if, and when appropriate) and better protect the members of these societies from the financial burden and legal complexities of the receivership and liquidation process.

This bill contains the following key provisions addressing solvency:
  • Early regulatory intervention with an authorized risk-based capital control ratio as the trigger point which gives the Pennsylvania Insurance Department more tools to address a failing fraternal.
  • A requirement that a fraternal notify the Pennsylvania Insurance Department prior to assessing members and the ability of the Insurance Department to disapprove such an assessment if it is not in the best interests of members.
  • A streamlined process for a voluntary workout prior to liquidation that facilitates the transfer of insurance certificates to another fraternal or even to a commercial insurer and circumvents antiquated governance structures that can delay or preclude mergers.
  • Streamlined liquidation process to help minimize costs to members and reduce the potential loss in the certificate benefits due to a member assessment.
In closing, this common sense, pro-consumer legislation is supported by the American Fraternal Alliance and the Pennsylvania Fraternal Alliance, as well as the commercial life insurers in Pennsylvania. It was developed with the assistance of the Pennsylvania Insurance Department and protects consumers who purchase life insurance and annuity products from fraternals from the potential loss in the value of those policies that would result from an insolvency. This strengthens the entire fraternal community, allowing them to better fulfill their financial and community services mission in Pennsylvania and across the country.

Please join us in sponsoring this legislation making certain that Fraternal Benefit Societies can better serve their members and the communities they assist.



Introduced as HB1016