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

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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 In an [article] published today on Insurancenewsnet.com, Sheryl Moore, President and CEO of AnnuitySpecs.com discusses the so-called 10/10 Rule and its implications on product design, performance and consumer protection.  

Moore notes that the 10/10 rule, dubbed this due to its maximum 10 year surrender charge period and 10 percent surrender charge penalty, was designed to protect consumers.  She notes that "the rule seeks to avoid having 85-year old grandmothers on a fixed income being swindled into a product where she will not receive her full cash value for 11 years or more."  

Her conclusion is however, that this intent has the result of limiting the availability of products that would be suitable and desirable choice for some. The article presents one of the constant struggles with product regulation:  when is consumer protection more accurately paternalism? That line is seldom clear and often reasonable minds will differ on where it should lie.  

Moore sees companies left with little choice than to design products that are "10/10-friendly" and that means, she states, a "slew of 10-year products with 5 percent premium bonuses that pay 8 percent commission."  

Encouraging readers to contact their state insurance departments to protest the paternalistic limits in product choices, she concludes: "Limiting surrender charges on annuities because of bad agent behavior is like outlawing hammers because some murderers use them to bash their victim's brains in.  When used properly, indexed annuities of all durations are a valuable insurance product."  Moore states that even a 16 year surrender charge would be appropriate for her because she does not need income now.  

Obviously one issue is that we don't always anticipate the need for funds.  Many who are unemployed today may not have expected it a few short weeks or months ago and a surrender charge could seem pretty significant when faced with the present need for cash.  But is there a difference between a 10 year and a 16 year surrender charge in that case?  Where is the line between reasonable and unreasonable?  And who do we want making that decision? The individual or the regulator?  

It will be interesting to see how much, if any,  of this type of product feature regulation survives as we move toward federal regulation of insurance.   But if we modify slightly her analogy to hammers, Moore suggests gun control or cigarette/alcohol restrictions may be an appropriate place to look at the difficulties that arise when we, as a society, try to decide where an individual's right to make choices that may cause harm ends and when it is appropriate for government to step in to protect us from ourselves and others who may try and manipulate our actions.  

 

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The New Jersey Department of Insurance is getting bombarded with emails and phone calls relating to the individual fixed annuity act going into effect April 1, and expects to be swamped with filings.

A March 9 Bulletin addresses using only approved Buyer’s Guides, having separate approved Disclosure Statements, and providing a 10-day Free Look provision with specific refund language, among other suitability issues.

Reginald Young, Chief of the Life Bureau, told us yesterday that he will try to expedite review of the forms being filed to comply with the new requirements, but he’s reserving the right of the Department to respond within 60 days. He noted that although the Department issued the Bulletin less than a month before the compliance deadline, the Act was approved nearly 6 months ago.

Mr. Young said he was informed by his legal department that there will be no extension for compliance.

The Department itself has not yet adopted all of its own regulations to fully coincide with the Act, but, as we know, statutes trump regulations.

It looks like it’s going to be a scramble to get approvals for separate disclosure statements and for any Buyer’s Guides that aren’t yet approved by New Jersey, as well as notices that an annuity owner can cancel a contract within 10 days of receiving it and get a prompt refund.

With New Jersey’s reputation for utilizing the full 60 days it’s allowed to review filings, there may be a lot of hurry-up-and-wait.

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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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The NY Insurance Department has posted updated Filing Guidance on the use of Variable Material for Individual Annuity Contracts and Life Insurance Policies.  While some of the guidance is duplicative of  previously posted documents, the new rules for List of Fund filings are now included here, not just in the revised SERFF general instructions.  This is helpful.  In addition, there is guidance on informational filings. 

The Department indicates that informational filings will be acknowledged.  Companies are advised that they must wait for this "placed on file" acknowledgment prior to use of the new material.  While we generally prefer to receive something from the Department in order to have complete files documenting the filing, the recent slowdowns in processing submissions makes this requirement more onerous and something to plan around.  If recent List of Funds filings are any indication, receipt of this acknowledgment of informational filings could take a few weeks. 

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Just a quick reminder that the first of the new annual reports of out-of-state filings is due on June 1, 2008.  The form, designed by the Life Bureau, is to be used along with the market conduct profile.  Because the market conduct profile may be completed by a different area than that which does the form filings, new coordination may be necessary for this year's filing. 

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Marketing Names have recently become an issue in variable material submissions.  If you look to the guidance posted on the Department website in January, you will see the following with respect to marketing names. 

Marketing names.  If a marketing name is bracketed on the application form to reflect a future change and you do not know what the marketing name may be the Memorandum of Variable Material needs to indicate that any change in the marketing name will be submitted in a revised Memorandum of Variable Material for prior approval.

However, my experience is that it is NOT sufficient to state that if there is a change in the marketing name, a revised Memorandum of Variable Material will be submitted for approval.  In fact a file was recently closed when that was exactly what the memorandum stated.  The closing letter stated: 

Each memorandum of variable material must specifically state the name of each product which may potentially be used  with the above applications at this time. (Emphasis added.) 

This statement seems totally unnecessary because one and only one marketing name was included in brackets and the required statement from the published guidance regarding future filings if there was a change was included in the SOV.  Therefore, no other name could "potentially be used at this time" - or it would undeniably constitute use of an unapproved form!  Clearly the company understood this and conveyed their understanding that the approval would cover only the one name provided in brackets on the application.  Further the SOV  was in full compliance with the published guidance with respect to future filings.  But the filing was closed nonetheless and had to be re-submitted with the additional statement that there was no other name that would "potentially be used at this time."     It is unclear to me what additional assurance that provides, but I recommend including it to avoid having your file closed! 

 

 

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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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Some companies have received "disapproval" letters when they have tried to file for extension of approval under CL6.   

There appears to be some challenges when putting this type of submission together appropriately so that it can be approved under the certified process.  It cannot be successfully done by merely making the request for an extension of approval in the submission letter for the new forms.  However, the Department assures that extensions of approval CAN be accomplished via certification, but the Re of the letter and the certification would need to be correctly prepared and the request clear from the submission package. 

The more complicated question though,  is determining when a company needs to request an extension of approval to begin with.  If a policy and an application form are both approved in the same package, are they approved solely for use with each other?  Then if another application is developed for the same policy would an extension of approval for that policy be required or would a mere reference to the policy be sufficient in the submission letter?  When I make that determination I look back at the original submission letter and the original approval letter to see what representations and conditions were put forth, but the longer we live in a certified approval world, the less clear it becomes when a real extension of approval is required. 

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At the recent  seminar, a representative of the NYSID set forth the Department's new rules for substandard annuities, as they are now approving them, when they are NOT issued in the structured settlement market.  These rules are:

1) Insurers must comply with the requirements of section 99.6 (i)(1) and (4) of Reg 151;

2) Cases must be underwritten individually;

3) Issuance on a substandard basis is limited to those who have serious and acute health impairments based on submitted medical information. 

Continue Reading...

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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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In a conversation with Kathleen Nelligan of the NYSID this morning, she once again reiterated the need for specificity in SOVs.  While she concurred on the importance of guidance being published on the website, she also said that the Department needs to know now what is going to be on the form when it is issued.  They can't wait to enforce the standards until those standards are published.  From the conversation, it is clear that if your company is in a position to fully define alternative text (including new addresses and phone numbers) that might appear, those should be included on the SOV up front.  If however you thing something may change but you don't know what the new provision might be, e.g. where the service office might move to if it ever moves, you need to make clear on the SOV that your company will re-file the Memo prior to implementing any new text.  

In some cases, failure to provide sufficient detail may get through the process and the SOV may be approved.  But take note that the NYSID is likely to consider it use of an unapproved policy form if there is any modification that they determine is outside the scope of the SOV's explanation.   

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The NJ Department received almost 200 comments on their proposed regulation on prohibiting discretionary clauses in life and health insurance products.   One of the issues raised was related to form filing and dealing with non-conforming forms that are out in the market.  In their Summary of Public Comments and Agency Responses, www.state.nj.us/dobi/proposed/ad070507_disc.pdf, the Department states:  "As proposed, the provision in question deemed withdrawn after January 1, [2008]  all newly issued or renewing policy and contract forms that contain noncompliant discretionary clauses.  Refiling noncompliant forms is not required."  Note that because of the timing of the effective date, the originally published  January 1, 2007 date was pushed back to January 1, 2008.  Because it is the Department's policy - as expressed in this regulation - that carriers will not have the sole discretion to interpret the terms of a policy or contract, and that covered persons retain access to their appeal rights under state and federal law, they seem to conclude that re-filing of noncompliant forms is unnecessary.  However, because as stated in the quoted language above, non-compliant forms are deemed withdrawn as of January 1, 2008, it remains somewhat  unclear what the status will be of previously approved products that contain discretionary clauses as of January 1, 2008. 

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I have now seen multiple letters from the NYSID warning companies that their CL6 privileges may be suspended due to problems with their companies' previous CL6 filings. 

In these cases, the letters were addressed to, and were based on filings from, a single unit of the company and one that was other than the unit bringing the letter to my attention.  However, the Department's warning applies to a company's filings across the board.  In some cases, the unit bringing the letter to me did not realize that a temporary hold had been placed on their submissions until it had been lifted! 

Of course, the NYSID doesn't know which unit generates which filings, so they are not in a position to clearly differentiate, but when companies have separate and distinct areas that generate filings and when those units may have very different policies and procedures in effect, these company-wide actions cause particular problems for large, decentralized companies.   

Continue Reading...

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Over the last few months, I have been paying close attention to the many varied submissions that I have done on behalf of client companies and have come away with a clear strategy - keep it simple! 

Continue Reading...

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The New York State Insurance Department has announced that they plan to start sending warning letters to companies that submit deficient filings.  Continue Reading...

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Many life insurance companies are struggling with the evolving standards for filing and receiving approval of variable material.  The NY Insurance Department published guidelines for variable material on their website,  www.ins.state.ny.us/acrobat/il_fgsvm.pdf, and it is certainly helpful, it does not address many of the problems plaguing companies in recent months.  Continue Reading...

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Companies doing business in New York face difficult options when designing innovative products that need approval in New York.  New York law and the Department's administrative guidelines provide for filing alternatives, but each has advantages and disadvantages when the product is an innovative one that the Department might not have seen or which might be new to the company.  One approach is to file for full prior approval.  The obvious advantage of this approach is that the Company has the benefit of a full vetting of the issues with the Department and all requested revisions are made before product launch.  The major disadvantage is time.  Currently, it is not unusual for review periods to exceed one year, which in the fast paced world of product development, is usually not acceptable.  But another,less obvious, disadvantage is that even though many filings submitted for full prior approval are innovative ones, where the issues are complex, the Department still enforces its policy to close a file if all issues are not resolved with two rounds of correspondence. 

 

Continue Reading...

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On the New York State Insurance Department's website, there is posted guidance on the procedure for filings to change company names and addresses as well as in situations where there is a company merger.  www.ins.state.ny.us/ilifchng.htm.  However, the guidance does not suggest time frames for making the required filings.  In recent conversations with Ms, Kathleen A. Nelligan, Chief Insurance Attorney for the Life Bureau, she requested that companies file these submissions as early as possible, so as to allow time for unforeseen issues that might arise.  Ms. Nelligan indicated that the Department would prefer to receive the submissions early and issue conditional approvals than receive the submissions timed to correspond with the anticipated name change/merger date. 

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