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

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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‘Twas the night before filing, and all through the joint,

Not a pencil was moving, ‘cause none had a point.

Every ‘t’ had been crossed, every ‘i’ had been dotted,

All the coffee was drunk, every stomach was knotted.

New York compliance cert’s dated and signed.

We’d assured the signer she’d never get fined.

PDF’s were all ready, uploading begun,

We at Currin Compliance were up for some fun.

But wait, just a minute, something’s not right.

Some brackets are missing, my God, not tonight!

It’s that damn interest rate, with which we’d been fussing.

The percentage is good, but the bracket’s gone missing!

We jumped into action, typing like mad.

We Adobed that thing, putting back what we had.

We quickly revised that bad SOV.

And made it compliant, Cailie and me.

And now we’re so ready, to put it to rest.

Submit it on SERFF. We gave it our best.

We hope when returning the next working day,

The approval we seek, will be heading our way.

But for now we head home, it’s done and we’re leaving.

And to you, Merry Christmas, and to all, a good evening.

...Suzanne Seay

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A New Year's resolution (in addition to the usual exercise more and eat less) is to post here more often. I had hoped to get off to an early start by posting more this month, but as some of you know, I had an unfortunate collision with the sidewalk while running with a puppy at Thanksgiving. Bones were broken. As of today I have a cast on my left arm and a splint on my right arm, and I am starting physical therapy for the broken elbow soon. Typing is hard. So, the New Year's resolution will have to wait a bit.

In the meantime, I appreciate all of you; those who read and give me feedback regularly, those who are the more silent type, and those who pop in just occasionally. I like knowing you are there.

For those who celebrate a holiday this week, Merry Christmas or Happy Kwanzaa. For the rest of us, Happy New Year! 2010 is sure to be an interesting one in the world of insurance compliance.

Cailie

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In the December 2009 edition of Best's Review, Al Slavin wrote an article entitled "Settlement Strategies" in which the confusing state of life settlement regulation is made a bit clearer. There are helpful charts and tables setting out the differences between the NCOIL and NAIC models and indicating which states have gone in what directions. One thing he touches on, but does not focus on as much as I think he could, is the possible relationship between increasingly red state budgets, due to the recession, and the changing perspective of state regulators to sales of life insurance policies.

It is in quoting Scott Hawkins of Conning Research that this connection is made. He states: "Unfortunately, a lot of people will impoverish themselves in order to qualify for medicaid to have the state support them in the nursing homes...So to the extent that life settlements are one more option among many that a person may turn to at this point in their life, the states may be interested in expanding that discussion."

That seems to directly relate to the lead in Mr. Slavin's article where he describes ME and WA's new requirement that senior citizens and chronically ill individuals, who are about to surrender their policies, be told of the option to sell their life insurance policies to a third party. And that made me think a little differently about some of the issues presented. In addition to the tables and graphs mentioned above, two actual life settlements are sketched.

In one settlement a 54-year old in poor health settled his/her $928,526 face amount policy for $590,000 when the cash surrender value was $6,145. The article states that "The policy owner used the proceeds of the settlement to get out of personal bankruptcy and save her house." While no one wants to see someone lose their house while they are in poor health, the personal bankruptcy is what got my attention. How much of those proceeds are going to pay off creditors with unsecured claims? If any of those are health care related, a whole other set of public policy issues arise: Given the number of personal bankruptcy cases that are a direct result of health crises, that seems quite possible for a 54 year old. If the debts leading to the bankruptcy were not paid, what would have happened? Would any heirs have been responsible? Would s/he have been eligible for medicaid? If all the proceeds of the life insurance policy were used to pay these debts, what is left for the beneficiaries? Who are they and what are their needs?

I don't pretend to know what is right for this individual, or any other specific instance of a life settlement. And as a general rule, I am wary of paternalistic determinations of what is right for consumers. I don't usually support taking options away from individuals if they are capable of making reasonable decisions.

However, when issues converge as they do in life settlement cases like this one, it is very hard to be sure what any interested party's motives might be. And when medicaid and nursing home costs are involved, states are also interested parties. In the past, I would have been much more inclined to view this as a dispute between life settlement and life insurance companies than I do now after reading Mr. Slavin's article. I never thought these were simple issues, but I did not fully realize how truly complicated they can be.

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As a quick FYI, today the House Financial Services Committee unanimously passed, by voice vote, H.R. 2609, the Federal Insurance Office Act. "Today, the Financial Services Committee completed its initial work to reform the regulatory structure of the financial services industry by passing my Federal Insurance Office Act," said Chairman Kanjorski. "I have been working on this bipartisan bill since 2008, and I am pleased that the new Administration recognizes the importance of ensuring that the federal government has a knowledge base on insurance. With the improvements made to the bill today through amendments, we can now continue to move this important bill and the other regulatory reform bills through the legislative process. I am eager to pass these bills in the House." The bill is available [here.]

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As we all know, post-approval reviews often reveal new and unexpected positions on the part of the New York State Insurance Department. However, some are just downright astonishing—especially when accompanied by a demand for a "corrective endorsement" for in-force policies.

If your company issues UL policies, you are advised to note the following objection: "Minimum loan amounts are not authorized by statute and are not permitted. Please provide a corrective endorsement." The Department does not say that there is a statutory PROHIBITION against a minimum loan amount. There is simply no specific authorization for a minimum loan amount on UL policies. The legislature did not address this issue at all and there is no NYSID regulation governing UL products.

The Department did, however, draft a regulation regarding VUL products and guess what? Minimum loans are expressly permitted. Section 54.6(b)(10)(vii) of regulation 77 states: "The policy may specify a reasonable minimum amount which may be borrowed at any time, but such minimum shall not apply to any automatic premium loan provision." Can a company really be faulted for thinking the same standard would apply to UL policies absent anything in a law or regulation to the contrary? The Department created that standard for VUL itself, wouldn't you rationally think it would apply to UL policies too?

And of course here we are talking about having to do a "corrective" endorsement? What is being corrected? The Department permits reasonable minimum loans on VUL, but having a minimum loan amount is so egregious a "violation of law, regulation, or circular letter" that a corrective endorsement must be provided to all in-force business. But what law; regulation or circular letter you might ask? The silent law, the silent regulation, the silent circular letter.

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