Life Insurance Law Blog : New York Life Insurance Compliance Lawyer & Attorney : Currin Compliance Services LLC : Annuity Compliance & Insurance Regulation

The February 8 issue of [Insurance Compliance Insight (ICI)] had a very informative piece entitled Best Practice Tip: Use FINRA Regulatory Notice as Guidance for Insurer Social Media Policies.

Just last year I attended an insurance compliance conference and in a regulator session that was not on this topic but had an open Q & A session, I asked a state regulator what his state was doing about social media. He gave me a line describing what he thinks of Twitter that got a lot of laughs and was very funny, but revealing in that it made clear that his department had not seriously addressed these issues. FINRA is taking a different approach and ICI suggests that companies would be wise to look to FINRA's Notices when they draft their own social media policies and procedures.

As a blogger, one of the areas discussed in the ICI piece that is of particular interest to me relates to blogs and is the distinctions between static content blogs as advertising and those which are interactive, which are called an interactive communication forum. In the latter situation, prior approval is not required from FINRA, but if it appears that the firm as somehow endorsed or approved the content, then the comments could be considered to be endorsed or approved by the firm. Most of my posts here could be viewed as static, in that comments are not often submitted (though they are welcome!) but it is also potentially interactive in that the comment facility does exist and is sometimes used, (though most often comments are sent to me privately via e-mail). So how does that fit?

My understanding is that since this blog is not used to engage in real-time, interactive communication, it would be considered static content. However, under the FINRA Notices, I would still be concerned about the possibility that the comments that are made could somehow be attributed to me or be viewed as being approved by me. FINRA looks at whether there is a disclaimer saying that third party posts don't reflect the views of the firm and have not been reviewed for completeness or accuracy.

Clearly, it would seem such a disclaimer is a best practice. Though mine is not a firm regulated by FINRA, that type of disclaimer is going on the To Do list!

The Insurance Compliance Insight article makes several other "Best Practices" recommendations that make good sense for all of us who use social media in business. These include:

• Establishing appropriate usage guidelines for customers and other third parties that are permitted to post on firm-sponsored Web sites;
• Establishing processes for screening third-party content based on the expected usage and frequency of third party posts; and
• Disclosing firm policies regarding its responsibility for third-party posts.

My guess is that the regulator who made the Twitter comment just a few short months ago would not do so today. Social media can't be laughed at or ignored. It is just too big. We all need to be looking at it and these best practices make sense for today's social media. Keeping up with the new developments is what will be the challenge for regulators as well as companies…  Wouldn't it be nice if we could just make fun of Twitter?

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Darla Mercado reports in today's edition of Investment News that while fixed annuity sales fell for 2009, down 2% from 2008 sales, indexed annuities did better— up $3.5 billion year-over-year. [ Fixed annuity sales slid in '09]. Based on Ms. Mercado's reporting, fixed annuities in several distribution channels and designs (book value vs. MVA) fared poorly, due to low interest rates, according to Scott Stathis of Kehrer-LIMRA. Variable annuities are only discussed in the bank channel, where she reports that in November sales were down .1 billion from other monthly sales figures in 2009, while they rebounded a bit in December to be .1 billion higher than those previous months. Mr. Stathis reportedly attributes the somewhat depressed sales of variable annuities to higher fees and decreased benefits.

Meanwhile on the life insurance front, the [MIB reported late last week] that U.S. application activity for individually underwritten life insurance increased 1.2% in January year-over-year. The MIB states that January 2010 represents the sixth consecutive month where year-over-year change is positive for the U.S. Life Index, and they report that as being the longest sustained trend of U.S. increases on record. Application activity for the period December 2009 to January 2010 remained virtually flat.

From where I sit, I look at the future and not the past. From here, I see a lot of product development with some significant innovation being discussed. It would not surprise me at all if this year sees a large increase in product filings and new products coming to market. My evidence is far less scientific than was reported above, but I like what I see; people I know who were laid off are finding jobs and product development seems to be churning. I like to know what the research says about past sales, but when I think about what the future holds, I have learned to trust my desk. And 2010 is shaping up as a busy year!

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Updated product checklists are now available on the New York State Insurance Department's website for Medicare Supplement product filings. Checklists are available for both group and individual filings. These refer to the new regulation (Regulation 193) that has been recently promulgated in order to bring all the Med Supp requirements into a single regulation and to make the necessary changes to comply with federal law.

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The February 2010 issue of [Best's Review] has an interesting article, written by Lori Chordas, on LTC Annuities. I have heard a lot of chatter about these products over the last few months as we approached and then passed the 1/1/2010 Pension Protection Act changes. The change in the tax treatment of withdrawals from annuity account values when used to pay LTC premiums, makes these combo products more desirable for consumers now than they have been previously.

Because there is no taxable event when the premiums are deducted from the annuity's value, the cost of the LTC premiums is effectively lowered. Chordas quotes Scott Goldberg of Bankers LIfe and Casualty Co., on two advantages over stand-alone policies: 1) long-term care annuities lower the cost of long-term care insurance and, 2) they remove the 'use it or lose it' fear with respect to the annual LTC premiums.

Chordas' article provides general descriptions of three currently marketed products, each with unique design features; those of OneAmerica, Bankers Life and Casualty Company, and Mutual of Omaha. Although different in the design details, each of the products appears to achieve the goal of keeping the actual cost of LTC down. There was little discussion of the fee structure of the products, to know how those might impact performance, but all seemed to have the potential to achieve the combo product goals. Ms. Chordas cites LIMRA sales research showing that LTC sales have fallen considerably from the 580,000 policies sold in 2002. It will be interesting to see how the various products that are in development come to market and whether they are able to meet the challenges that stand-alone LTC policies have faced.

Of course I would love to have the opportunity to be involved in the development and filing of these new and innovative products as companies bring them to market, but even if I am not, I look forward to seeing how they develop and what their impact is when they get out there on the street.

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The New York State Department of Insurance (NYSID) demonstrated its flexibility and good sense yesterday when it allowed us to remove two words from its recommended disclosure language regarding the impact of DOMA (the federal Defense of Marriage Act) on annuity products.

As we have discussed here previously, the NYSID now requires that annuity products warn lesbians and gay men who are legally married to their same-sex partners that their tax-related benefits are limited by the federal government. This is because the federal government, including the IRS, defines marriage as between one man and one woman. NYSID recommends that specific disclosure language be included in annuity contracts in its Supplement No. 1 to Circular Letter No. 27 (2008). If different language is used, the product cannot be submitted in a certified filing, but must be submitted for review and approval, which is a much more time-consuming process.

We’ve had numerous endorsements cross our desks that duplicate the required language. When we were reviewing an individual annuity that included the required language right in the contract, we stumbled on this phrase: “To the extent that an annuity contract or certificate accords to spouses other rights or benefits…” (emphasis ours)

We thought it might be confusing to an individual owner to come across the word “certificate” in an annuity that has nothing to do with a group contract. We called Mr. Peter Dumar, an attorney at NYSID, and asked if we could delete the words “or certificate.” Without hesitation, he agreed that these words are irrelevant in this situation. He said we could remove them, and he said he would let others at the Department know that this change would still be considered compliant under the supplement’s guidance.

Thanks Mr. Dumar, you made our day. Sometimes, it’s the little things …

Suzanne Seay, Analyst

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The National Underwriter's Online News Service is reporting today that Ruark Consulting, LLC out of Simsbury, CT, concludes that use of the guaranteed minimum withdrawal benefit options has been lower than originally expected. If these trends continue, Ruark opines, that could be a favorable development for insurers' reserves and capital levels.

The Ruark study found in the 3 million policy years of data that only 1 in 5 are taking any partial withdrawals. Of those who are taking the partials, only 1 in 3 are taking the maximum amount allowed.

One of the things I would have been interested in that was not reported was how many of those taking partial withdrawals are taking excess withdrawals. Ruark finds 1 in 3 are taking the maximum, but I wonder how many may have gone beyond that maximum withdrawal. I look at a lot of numerical examples explaining how excess withdrawals impact values. It would be interesting to me to know how much of an impact those examples have, if any. I recognize that it is easier to determine the "how many" than the "why," but reading the report of this study made me wonder about the allocation of disclosure resources on excess withdrawals, when in fact such a small percentage of owners are taking withdrawals of any size.

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Without specifics, it is very tough to know, so I'll just pass [this] along for your reading pleasure.

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For a variety of reasons, over the weekend, I spent a fair amount of time thinking about why I do what I do. Much to the surprise of many, I am quite passionate about my work. I was thinking about that in the context of some recent jobs and posts here. I realized several things, none of which are rocket science, but here they are nonetheless:

1) I totally love what I do. I loved it at the NYSID. I loved it when I was in-house. I have found my place. I am happy to get up every morning and go to work, because I love what I do. I am very lucky.

2) I have tremendous respect for the people I work for and with.

3) I love that I am not asked by my clients to cut corners or find ways around the right way.

4) I believe in regulation, not for the sake of regulation, but in effective regulation.

5) I believe in fairness in regulation.

It is this last point that I really spent time working with, in the context of the others in my list. In my opinion, the most important aspect to fairness in regulation is openness, consistency and predictability. I think in many cases it matters less what the rules are, than that the rules are known and change only with advanced warning.

When the rules change without warning—especially if the changes are applied retroactively—it feels unfair. When negative consequences are imposed for acts that were not against the rules when they were done, but at some unknown point in time became so, it feels incredibly unfair. It starts to feel impossible to stay compliant over time because it is impossible to know what the rules are at any given point in time. It is a short step to an attitude of "why should I bother?" "If I can't succeed, why should I try?" "If I am going to be punished even when I try hard to do things right, why should I try?"

If we as a society want insurance and we want a compliant industry, compliance should be made as easy as possible, given that this is a complicated industry. Insurers should have the best possible chance to be compliant while they are doing what they really do, which is sell insurance.

I think a big part of why I like what I do so much is that I get to give some of  that. I get to help make it easier for companies be compliant. I can't make it easy, but I can make it easier. I get to help keep good, strong, and intelligent people from getting to the point where they don't think compliance is possible and they stop trying because they can't figure out what the rules are today. I love that!

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Happy New Year!

With the new year upon us, many insurers are working on annual filings. Some companies may have done their annual illustration filings for 1/1/2010, but if your company uses a later date in the year for NY, be sure to consult the [guidance] issued by the NYSID last fall on this topic.

Of particular note is the section titled How Should Policy Forms be Listed? This will come as a surprise to many, I believe. The Department states: "Many certifications only contain lists of policy forms that are currently being issued; however, the certification also pertains to illustrations for existing policies on forms no longer being issued." They emphasize that the list must include all forms for which in-force illustrations subject to the regulation could have been made. The guidance says that the list should distinguish between forms currently being issued and those no longer issued. Note also that all riders "involved" in illustrations must be listed in the annual certification as well as the base policy form.

While guidance setting out best practices and recommendations for clean submissions are always appreciated, this seems to be a new interpretation of this long-standing requirement. Nonetheless, the guidance does indicate that this is one of the Department's "expectations" and it seems likely that those companies submitting lists formatted in ways that have been accepted previously may find they are not accepted this time around.

For those submitting via SERFF, the filing guidance is quite helpful: TOI "Life Insurance & Annuity Products" Sub-TOI "General" and filing type "Life Annual Illustration Certification."

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