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

In a recent Office of General Counsel Opinion, posted yesterday (1/20/2009), the NYSID provided some  clarification regarding the application of Circular Letter 27 (2008).   However,  this very brief opinion adds to the discussion begun in November 2008 regarding its application, but it does not make clearer how insurance companies can comply with both the circular letter and the federal Defense of Marriage Act (DOMA), when both would be applicable to a particular product.  

We get asked about this daily here in the context of spousal continuation for annuities and there does not seem to be an easy answer.  There is a great deal of confusion within the industry about how to handle this issue.  The choice appears to be marketing a product that complies with NY's mandate for equality of treatment for all spouses, wherever married, and marketing a product that is consistent with DOMA, which disqualifies any product offering same-sex spousal equality the status of an "annuity" under 72(s).  This new Opinion does not specifically address that issue although, notably, it does not include annuities in the short list of products impacted by the Circular Letter.  (see below)

Perhaps the NY Insurance Department is considering exempting annuities from coverage which would resolve this issue for insurers, but retain a discriminatory stance towards many legally married New Yorkers.  Based on my conversations with Insurers, they would be happy to be able to offer spousal continuation to same-sex couples, but do not want to create a situation where the product no longer qualifies for tax-advantaged status under the Internal Revenue Code due to the operation of DOMA.  

The NY  opinion was based on a general inquiry, with no specific facts and the entire analysis set forth in the opinion is as follows:  

"Circular Letter No. 27 (2008) advises that same-sex spouses legally married in jurisdictions outside New York must be treated as spouses for purposes of the New York Insurance Law.  The circular letter draws on the Insurance Department’s Office of General Counsel Opinion 08-11-05 (Nov. 21, 2008), which analyzed, inter alia, Martinez v. Monroe Community College, 50 A.D.3d 189, 850 N.Y.S.2d 740 (4th Dep’t), lv. to appeal denied, 10 N.Y.3d 856 (2008), and concluded that New York’s “marriage recognition” rule applies to marriages between same-sex spouses validly performed outside the state.  Although that opinion focuses principally on health insurance, both the opinion and the circular letter note that the opinion’s analyses and conclusions are “applicable to all other kinds of insurance, too.”  Accordingly, Circular Letter No. 27 (2008) applies to group long-term and short-term disability insurance, which are types of accident and health insurance, and to group term life insurance."

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Disclaimer:  I speak only for myself here.  I do not purport to speak for "the industry."  I do not purport to speak for my clients.  This is just me.  So....

In the policy forms meeting with the Department today there was an extended discussion  about the process for making fund changes and a good deal of dissatisfaction expressed.  I can understand wanting more flexibility in Variable Material, particularly with respect to fund changes.  However, as of today, we have a clear process.  We know what to do, the guidance is easy to comply with and it is fast!  For me, this is the definition of a good process.  We can argue around and around about what is necessary from a legal and regulatory viewpoint, but on a day-to-day basis, this process is a good one because it is clear.   I like knowing that within 5-10 days of getting final fund change information I can have documented approval for them to be used because I know exactly what to do and how long it will take. 

What I am very concerned about is opening up a protracted discussion which will, by definition, create uncertainty.   But not only that, most importantly, who is going to be involved in this discussion?  At the Department, it is going to be the people we need to have spending time on other, in my personal view, more important matters.  I would like Kathy, Ralph, Deb, Dennis and Tom and the people who report to them, spending time on innovative products, on revising the outlines, on new regulations, on wrapping up post-approval reviews and on the myriad of other things that need their attention so that life insurers can do their business in New York.  They will likely spend hours internally - and with us - talking about Variable Material and fund changes - all to fix something that may not be perfect, but it works!  At least we know how to get fund changes approved! 

Who can get an "innovative product" approved quickly?  And we won't be able to if the staff is spending all their time debating fund change nuances and other items already dealt with in the recently posted guidance.  Some may not have gotten everything they want, that rarely happens in a regulated industry.  But can't we pick our battles, deal with it and get on to more pressing issues?  After all, there are only so many hours in a day.....

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Several companies have recently had their filings rejected based on statements of self-support that include the statement "and other relevant factors."   In the Circular Letter that was issued after the revisions to section 4228 that first included the statement of self support requirement , the Department initially recommended this language.  See  www.ins.state.ny.us/circltr/1998/cl98_08.htm.   However, in an opinion issued by the Office of General Counsel in 2001, www.ins.state.ny.us/ogco2001/rg106291.htm it was concluded that the requirement went beyond the language of the law. 

It was my experience that many companies left the language in their certifications after that opinion by choice, and for many years there was no reaction by the Department.    However, the Department now contends that the OGC opinion made use of that phrase impermissible.  The use of  "and other relevant factors" today will result in a CL6 file being rejected. 

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