New York Life Insurance Compliance Lawyer & Attorney : Currin Law Office : Annuity Compliance & Insurance Regulation

In several recent policy form reviews, both prior approvals and post-approval reviews, the NYSID has raised an issue that may warrant some investigation of policy delivery practices at your company.  It arises when applications include a statement along the lines that the policy does not take effect unless the insured is insurable or in "good health" at the time the policy is delivered. 

At policy delivery there are two possibilities:  one is that money was collected and a conditional receipt or temporary insurance agreement provided.  The Department's position is that  when a conditional receipt was issued the insured need not be insurable at delivery and so the affirmation in the signature section is not permissible.  The other possibility is that no money was collected at application.  In that instance, a  statement in the base application regarding continued good health status is permissible, but the Department requires that a form such as a "Statement of Good Health" be used at delivery (this must be a filed and approved form) in order to collect information on health status.  

This position is likely to come up in future post-approval reviews, and so companies would be well-advised to review applications approved on a CL6 basis, as well as their actual practices on policy delivery to determine whether they are in compliance with the rules set out above or whether a revision to the form or the filing of a Statement of Good Health should be considered. 

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In a July 9 press release, the MIB Life Index reports that U.S. life insurance application activity in June 2008 was off 0.9% when compared to June of 2007. 

Year to date, application activity is down 2.5%% over the same period last year.  Interestingly, while application activity for all ages combined is down 2.9% when the 2Q of 2007 is compared to 2Q 2008, application activity for ages 60+ is up 4.2%.  Looking just at June similar reports are reported with ages 60+  being up 5.1% June-over-June while as indicated above all ages are down 0.9%. 

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On June 16, 2008, the NYSID published on its website an OGC opinion (080502)  dealing with insurable interest under section 3205(b)(3).  The context is a life insurance policy purchased by and for the benefit of a charity in order to advance an individual's goal of using a self-directed IRA to provide funding to a charity without adverse tax consequences.

The facts are very specific and the opinion quite fact-dependent, and so on first review it might appear to be limited in its applicability.  However, what I found to be the most interesting part was towards the end where the opinion compares this determination that there is an insurable interest with an earlier OGC opinion. That was an arrangement to raise funds through a securitization arrangement and to use the proceeds to purchase life policies and annuity contracts on a pool of donors.  There, section 3205(b)(3) was determined not to be satisfied because the transaction appeared to provide more benefit to third party investors than to the charity. 

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Those of you who have spoken with me over the last several months about a variable life insurance policy, know that there is a confusing interplay between Regulation 77 and Section 3211 of the Insurance Law.  Because of the different periods of time and different terminology found in these two provisions of law, a Company could find themselves either having to send two grace period notices or being unable to lawfully terminate a policy upon default.  The NYSID has now posted a Circular Letter to address this situation.  

The Circular Letter (CL7 (2008)) makes more clear how the policy provision can be drafted so that one notice contains all the necessary information and so that it is sent at a point in time that will satisfy both the variable life regulation and the general notice of premium due section of the Insurance Law. 

I myself found it helpful to put this in a format that is more visual:  a notice time line.  I would be happy, upon request, to provide the document that I created for this purpose.  Before starting to use it I asked Ms. Ryan, the author of this circular letter, to take a look at it and see if she was in agreement that it was correct. She was gracious enough to do so -  and to advise that it was accurate.  So please let me know if you would like a copy for your use. 

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The New York State Insurance Department has posted guidance for companies wishing to file policies or riders on a certified basis in advance of the 1/1/08 effective date for the new Reg 149.   Among other things, this new regulation will make Return of Premium riders more feasible in NY and it will permit term policies to extend beyond age 80 so companies wanting to be in a position to launch products in January may want to review this guidance and prepare submissions accordingly. 

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At today's policy forms filing task force meeting, the NYSID indicated that they are discussing internally what the process will be to allow companies to file revised policies during the period between now and when the new regulation becomes effective on 1/1/08. 

The issue is that certification is problematic when the regulation is not yet effective.   Forms drafted to comply with the new regulation would not be in compliance with the current regulation, but the certification is happening now.  Because the certification cannot be modified, companies cannot take it upon themselves to make changes to the certification that would make it accurate.  Therefore, a specific process is necessary.  It appears that guidance on how to handle this situation will be forthcoming so that companies can begin to put these submissions together and get them approved in time for a January 1 launch under the new regulation. 

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The Department has recently posted a document entitled Guidance on Equity Index Products on their website.  The guidance is not broken down by product type but rather addresses annuities and life products as well as individual and group.   One thing that jumps out at me is that there is not a single citation to law, regulation or circular letter.  This makes it more difficult to assess the basis for the positions as expressed in the product design guidance.  Some clues lie in the word groupings, but because the guidance applies to all products, some of these terms would not ordinarily apply to the product, based on where they are found in the law. 

For those companies that elected to file equity indexed products on a certified basis, there isn't a lot to determine what might come up on post-approval review that is based on law, regulation or circular letter.  However, the guidance does give a very good indication of what the examiners will be looking and asking for upon review.  And that is more than we have had in the past! 

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It has come to my attention through the post approval review process that there is a new position at the NYSID with respect to payouts. 

The Department is requiring an endorsement of approved contracts, at least those picked up on post-approval review,  to state what happens when the beneficiary also dies before guaranteed payments are all paid out.  This issue apparently arose from consumers' questions and when told that it depends what the contract says and the Department looked to see what they did say, it was found that many say nothing.  Questions arose regarding what would happen and whether the payments would go to the owner or the beneficiary's estate.  To promote clarity, the Department began to require a contract provision on those it reviews.    

Companies should take note because this is enforced not only on a going forward basis, but those companies who are subject to post-approval review are being required to endorse their  in-force contracts to address this perceived ambiguity.   There is nothing we can do about all the policies and contracts we have filed before we knew of this unpublished position - it will be up to each company to address the issue as it sees fit if it comes up on post-approval review - but for contracts being drafted now, this is a provision that should be included to avoid a comment and possible endorsement on the back-end. 

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Group Life policies and practices are currently under review by the NY Insurance Department.  NY has long been concerned about conversion rights and how certificate holders receive notification of their right to convert.  I have seen this raised several times on exam and now the Department is taking an active and  more systemic approach to looking at this and other issues related to group life.  It is anticipated that over the coming months there will be new positions and policy form requirements announced.  In the meantime, the outline drafted in 2002 remains the best resource for determining NYSID interpretations of the group life statutes. 

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The New York State Insurance Department recently posted new guidance on whole life policies that do not have a maturity or expiration date.  www.ins.state.ny.us/acrobat/20070404.pdf.  This guidance indicates that it is intended for new submissions, but it is "expected" that all policies will be "administered" in a manner consistent with the principals set forth below. 

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While no company wants to receive a post approval review letter from the New York State Insurance Department, the process can provide valuable information for use in the development of new products, policy form drafting, and the maintenance of internal files.  One example that has been raised  several recent post approval reviews is the Notice of Premium Due required by Section 3211 of the New York State Insurance Law.   That section does not explicitly require a policy provision, but the consistency with which the Department asks about compliance on post approval may make creation of a policy provision desirable to avoid the inquiry after issue.  An alternative  approach might be to document administrative compliance with this statutory mandate so that a response will be easier to prepare upon receipt.  This administrative notice appears to be just one of many issues that are being raised in post approval reviews that were never a part of the prior approval review process and reflect the combination of market conduct and policy form review that happens in the post approval review process. 

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