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The Pennsylvania House of Representatives recently agreed unanimously to approve a bill to streamline takeovers of failing nonprofit fraternal benefit societies. These membership groups offer their participants a limited menu of life insurance and retirement products like annuities.

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Pennsylvania oversees about a dozen fraternal benefit organizations with about 493,000 members — the highest total for any state. Members in a fraternal organization share a common faith or occupation. They typically have a network of local chapters, and they often emphasize doing charity work in the community.

In a memo detailing House Bill 1016, the bill’s sponsors emphasized that currently operating fraternal organizations are fiscally sound. However, an increasingly competitive insurance marketplace may put these organizations at risk in the future, the sponsors said.

Legislators aim to avoid any hardships caused by fraternal organizations going under and leaving members with worthless policies, the sponsors said.

To protect fraternal organization members from the financial and legal strain of liquidation, the bill would streamline the merger process between one fraternal and another, or a fraternal by an insurance company.

Commissioner Intervention

The bill would grant more power to the state’s insurance commissioner to intervene as soon as possible if the commissioner finds a fraternal organization is near insolvency. The bill would also require a fraternal organization to notify the insurance commissioner if it decides to assess members. Under this law, the commissioner could disapprove of the assessment if the commissioner deems the action isn’t in the best interest of the members or will not help the organization achieve long-term solvency.

The bill would give the board of directors of the fraternal organization the right to “suspend or modify” membership qualifications in an effort to speed up the transfer of assets.

The commissioner must approve any merger. The fraternal organization must give members notice of the transaction within 30 days of the commissioner’s approval.

The bill was scheduled for first consideration before the state Senate’s Banking and Insurance Committee on June 24. According to the rules, a bill on first consideration isn’t subject to a debate or vote. No date has been given for a final vote.

If the bill receives final approval, it would go into effect in 60 days.

The bill has the support of the American Fraternal Alliance, the Pennsylvania Fraternal Alliance, and commercial life insurers in Pennsylvania.

Resources

More information on the bill is available here.

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