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.
Without specifics, it is very tough to know, so I'll just pass [this] along for your reading pleasure.
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."
Remember factorials? Brush off your 9th-grade math book, because [Missouri recently began requiring that companies report the total number of form combinations that are possible, given all the text bracketed as variable material.]
We have received several inquiries regarding our experience and recent e-mail list exchanges have suggested there is much confusion out there. However, it's not as daunting as it may sound. The number indicated should represent the number of TYPES of insurance (on the life side), or types of PLANS (on the health side), being offered, according to a representative of the Missouri Department of Insurance, Financial Institutions, and Professional Registration. So, for example, on a variable annuity contract with lots of bracketing of the usual items on the specifications page, it's a "1" because it's a variable annuity with a particular set of charges that happen to be variable. One type of insurance.
A variable annuity contract with six optional riders, each of them bracketed? Still a "1." Still a variable annuity. It is not the number of items bracketed that they care about, but whether additional types of products are created by the use of bracketing.
Of course, it may not be as hard as it sounds, but it isn't completely easy either. There is room for error. The variable annuity with the six riders could be identified as a "6" (although we believe the Department would prefer a "1"). But let's say five of the riders address tax-related issues, and one offers Guaranteed Minimum Withdrawal Benefits. A reasonable person could identify this as "2" types of insurance being offered: a plain VA and a VA with GMWB.
Ok, so what if you're wrong? No worries. The number designation is not a compliance issue. The Department is not presently regulating the assigning of the number of combinations; it's just requiring that it be calculated. However, because of this new requirement, they do seem to be looking more carefully at variable material, so other problems are coming to light for some companies.
We specifically asked if an explanation accompanying the number might be helpful for the reviewer? Answer: No, just the number, please.
By way of context, the Department is using the information it collects to identify trends. The rule was inspired by the overwhelming amount of bracketing on health policies being filed recently, where it’s clear that a wide variety of plans, offering a wide variety of benefits, is being offered through one "form." So, be careful with variable material, prepare it well, and assign the number of types/plans of insurance as accurately as possible, but do not lose sleep over whether this new requirement will result in your file being closed. All else being correctly done, it will not.
Historically, life insurance has resulted in few complaints to Insurance Departments when compared to property/casualty or health insurance. However a [press release] issued today by the New York State Insurance Department discusses three complaints, two of which are life insurance complaints.
The press release touts $8.12 million in funds returned to consumers in the third quarter 2009 as a result of NYSID intervention. The two life insurance complaints together amounted to less than $60,000. Both complaints involved pretty small face amount policies. Despite the low dollar amounts involved, they are featured prominently in the release suggesting that perhaps life insurance complaints are more common and are higher on the Department's radar than they have been in the past.
Insurers would be very well served by making sure, in these difficult times when budgets are under great pressure but regulatory attention is heightened, that compliance, market conduct, claims and complaint handling do not get short shrift. The reputational harm to the company and the industry far outweighs the short-term budget relief that may result from cuts to these areas. A quick look at this press release is a good reminder for life insurers.
Yesterday I posted about the new [Supplement No. 1 to Circular Letter 27 (2008)] related to same-sex spouses and annuity contract language. The NYSID has now posted [Filing Guidance] for companies needing to file policy forms to comply with the requirements found in the Circular Letter. "Any revisions needed to address the concerns raised in the supplement concerning default options must be made to both in-force and new issue starting November 1, 2009." This post addresses issues I see in the disclosure portion of the Guidance. A future post will address the more general filing issues for policy forms.
It is interesting to note that the guidance appears to assert approval jurisdiction over the disclosures as well as any required policy form language needed to address the default options. According to the [Office of General Counsel], disclosures are generally not considered policy forms as that term is defined by statute in section 3201.
The filing guidance provides template disclosure language:
"Pursuant to the Federal Defense of Marriage Act, same-sex marriages are not recognized for purposes of federal law. Therefore, the favorable tax treatment provided by federal tax law to an opposite-sex spouse is NOT available to a same-sex spouse. Same-sex spouses should consult a tax advisor prior to purchasing annuity products that provide benefits based upon status as a spouse, and prior to exercising any spousal rights under an annuity."
If this disclosure is used exactly, then the certified, or CL6, process can be used by a company going forward for form filings. If there is any deviation from this text, then the forms may not be submitted on a certified basis because the disclosure will need review on a case-by-case basis, according to the Department's Guidance.
This is an interesting assertion of authority. On its face, it would seem that this disclosure is not different than many other types of disclosure mandated by the Department where they think it important for consumer protection. However, unlike those other instances, here if a company deviates in any way from prescribed text, full prior approval is required. This should not be understood as an objection to this disclosure as a way to resolve this challenging issue posed by a conflict between state and federal law. My concern is that this approach of mandating specific and exact and keying it to approval methods takes state-oversight of drafting to unusual, and in my opinion, unnecessary, heights.
Why can't a company use the following without losing the right to use an expedited process?
PLEASE NOTE: the Federal Defense of Marriage Act does not allow recognition of same-sex marriages for purposes of federal law. As a result, any favorable tax treatment provided by federal tax law to an opposite-sex spouse under this and other deferred annuity contracts is NOT available to a same-sex spouse in the same situation. We recommend that same-sex spouses consult their personal tax advisor prior to purchasing annuity products that provide benefits based upon status as a spouse. Further, we recommend that an advisor be consulted prior to exercising any spousal rights under an annuity to determine if it is right for you in your situation.
All the requirements of the applicable Circular Letter are addressed, but in different words. Nonetheless, if a company adopts alternative language that, for example, their in-house legal counsel likes better, they lose the option of a certified process. Instead, a non-substantive change in disclosure language results in the mandate of a prolonged and non-expedited filing process.
Further, does this mandated language mean that if a company elects a non-contractual disclosure form - say a stand-alone disclosure, where perhaps the text could be in a larger or alternative colored font - that form, otherwise not a policy form under the OGC opinion, now needs approval which can only be certified if it mirrors the guidance's text?
Is that really a necessary assertion of approval authority?
On August 10, 2009, the New York State Insurance Department officially responded to inquiries regarding the application of Circular Letter 27 (2008) to annuity contracts that must comply with federal law, including DOMA, to receive tax-advantaged treatment. A [Supplement to CL 27 (2008)] was issued to address the apparent conflict between state and federal law. The conclusion is that: "a same-sex spouse must follow the same rules that apply to any natural person who is not the spouse" in several circumstances, or "be subject to detriment in the form of taxes or penalties." From this conclusion flow 3 Department directives set out in the Circular Letter:
1) No later than 11/1/2009, any new annuity contract/certificate with spousal rights or benefits, "should include a clear an conspicuous disclosure to consumers that explains that favorable tax treatment provided by federal law to opposite-sex spouses is not available to same-sex spouses because of DOMA." That disclosure must also advise same-sex spouses to consult a tax advisor prior to purchase of an annuity providing rights/benefit based on spousal status, AND prior to the exercise of any spousal rights under the annuity contract.
2) For contracts issued prior to 11/1/2009, insurers should provide the disclosure on or before that date, or in the alternative, provide the disclosure to the beneficiary upon the death of the contract holder or certificate holder.
3) Insurers should review their policy forms to ascertain if there are any revisions needed so that a same-sex spouse "will not be defaulted to the spousal continuation option, and to ensure that the default option for a same-sex spouse is adequately disclosed."
The Department indicates that they will post details of an expedited approval process for form filings made solely to comply with this Supplement on their website. Peter Dumar is listed as the contact in the Life Bureau.
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The NYSID seems to be walking a very tough line here trying to reconcile state law prohibiting discrimination and federal law, which mandates discrimination against same-sex spouses. The interpretation of policy provisions may be a challenge as a result. It appears that the word spouse will be interpreted under NY law to include same-sex spouses, so contractual references to "spouse", without more, will include same-sex spouses.
It is less clear whether the now- common definition of "spouse" to be "as defined by federal law" will be permissible without limiting that definition to provisions of the contract where DOMA comes into play. If DOMA does not create adverse tax consequences, state law and this Circular Letter mandate that spouse include same-sex spouses and those spouses cannot be excluded by such a definition.
Further it is important to note that the disclosure requirement is not limited to same-sex spousal situations: All annuity contracts must get these disclosures and all are subject to the November 1, 2009 deadline. Therefore, with less than 90 days until that date, there is no time to waste in beginning the review of contracts and drafting the required disclosures so that they can be ready for use on time.
Finally, there is much confusion out there in the country at large and in compliance departments of insurers as well about the differences between various states on this issue. In looking at your company's policies and its definitions and various usages, you should be aware that the state of New York does not offer either civil unions or same-sex marriage itself. NY recognizes same-sex marriages performed in other states or countries, but civil unions performed elsewhere do not fall into the same category and are not similarly recognized.
Continue Reading...
While many may have already heard the news, the New York State Insurance Department posted Governor Paterson's [press release] announcing the resignation of Superintendent Dinallo late today. According to the release, Mr. Dinallo will be moving to an academic position in the business school at NYU. No doubt there will be much discussion in the coming days, weeks and months about who else from the Department may be following him and who will be his successor. His resignation is effective July 3, 2009.
The New York State Insurance Department has posted a [legislative summary] on their website. The link for the life-specific summary can be accessed [here.] While most of these have been effective for some time now, it can be helpful to have these brief reminders of the effective dates. We recommend taking a look to make sure that any necessary revisions have been made to policy forms and business operations.
The Albany Times Union is reporting today that Gov. Paterson has set the target for Insurance Department layoffs at 49. The Division of the Budget indicated that normal attrition is expected to account for many of the reductions generally, it isn't clear from the release whether the targeted 49 at the Insurance Department will go deeper than that.
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.
Earlier this month, the Nevada Division of Insurance issued a Bulletin on variable material. This has already gotten much attention in the various e-mail lists, but I think it is important to look at it in the context of other states as well. This Bulletin begins with a statement that it reflects the long-standing position of the Division with the exception of a few areas in which the Bulletin loosens their requirements.
This is an area that has concerned me for quite a while because I think many companies interpret the liberties granted by bracketing much more liberally than do most insurance departments. NY, NJ and a few others have long stood out as being more challenging with respect to variability, but in my opinion, most state examiners would not concede the approval authority that the use of variability by companies often results in. While these few states may stand out for requiring actual approval of the variable material, I do not think their standards are significantly different than what most other states would articulate, if asked. In my opinion companies who interpret bracketing to provide wide latitude for changes may very well be doing so at their peril.
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.
Many companies have been asking us questions about the Maine 3rd Party Notice of Cancellation requirements provided in Rule 585. That Rule’s third-party notice provisions allow policyholders to establish --in advance -- a line of communication that will increase the likelihood that adequate notice is given if an insurer intends to terminate coverage for nonpayment of premiums. The second part of the rule establishes conditions and procedures to reduce the danger that persons suffering from organic brain disease will lose life insurance coverage because of their disease.
A Third Party Notice needs to be filed with the Maine department for approval and must become part of the policy. The notice may become part of the application or may be a separate form. If a separate form it must clearly state it becomes a part of the policy.
Though many companies are currently looking at Maine’s requirements some have asked what other states have similar requirements. There are currently 4 other states with similar requirements for Third Party Notices: Alaska, Florida, New Jersey and Vermont.
Because none of these states require the Third Party Notice be filed, the notice will not become a part of the contract. Unfortunately, this difference means the Maine Notice can not be used in these 4 states. Maine specifically says the notice must become part of the policy and must say so on the form. This brings us to a second Third Party Notice to be used in states that do not require a filing of such form.
We recommend taking the strictest requirements from the states above and create one form to be used in all 4 states. The only differences from the Maine form is the removal of the sentence about the form becoming a part of the contract and the addition of a signature line for the Designee (required by NJ).
We suggest doing a mailing to all current contract holders age 62 or older in these states. This shows the states the company made every effort to notify in-force contract holders. Because 2 of the states require the notice be sent annually, going forward we would suggest making the Notice a part of the annual report for these 4 states. If your system can send the notices based on age to anyone 62 or older, this would be ideal.
We also suggest in FL and VT the Notice become part of the documentation given to the client at time of application.
For more information, please contact Anne Martin, amartin@currincompliance.com or see the posting on our website: www.currincompliance.com. We have forms available that are consistent with the recommendations set forth above. Anne will be happy to provide you with copies upon request.
If so, read on..... In what appears to be a new position and new interpretation of NY Insurance Law section 4223 (the annuity nonforfeiture law), the NYSID has raised on post-approval review, the statutory permissibility of contingent annuitants. The legal staff states: "When the annuitant dies, a death benefit equal to the actual accumulation amount should be paid in order to comply with [section] 4223(c)(1)....Section 4223 does not authorize" deferral of payment of the death benefit when the contract would provide that a contingent annuitant could be named.
Has anyone ever heard this interpretation? If so, when? ...we'd love to hear from you!
Section 4223(c)(1) defines minimum values. It is talking about the how much of the death benefit, not the when. Its focus is on the "actual accumulation amount" and then subsequently what can and cannot be deducted from that amount. There is not a single when word in section 4223(c)(1). It is all about how much. Section 4223 generally is a statute concerned with amounts - it is the nonforfeiture law, after all. The first place to look if you want to know when a benefit must be paid is section 3219 - the standard provisions section. If you want to know how much of a benefit must be paid, 4223 is the first go to section for a general account annuity.
This new position turns that on its head. No because the "how much" statute doesn't specifically authorize a deferral for a contingent annuitant designated by the owner because the owner wanted such an arrangement, the designation is characterized as a statutory violation on a post approval review. Silence in the nonforfeiture law about the actual payment of the death benefit means the owner cannot elect to designate a contingent annuitant.
This designation of a contingent annuitant is done by the owner of the contract, not the insurer. This interpretative position takes a right away from an owner and requires the insurer to make a payment that the owner doesn't want. If the statute affirmatively mandates such a payment that is one thing, but here there is no mandate. The legislature only defined the how much. It is the Insurance Department that is telling the owner that he/she cannot designate a contingent annuitant in the event that the original annuitant dies prior to payment of the death benefit.
And don't forget the Department is doing so in a post-approval review.....
As if there weren't enough tough publicity about insurance companies and financial services these days, the Wall Street Journal's law blog yesterday had a post titled: "'Dead Peasant' Policies: The Next Big Thing in Insurance Litigation." In her post, Ashby Jones refers to an article in the WSJ online written by Ellen Schultz that deals with a specific case in Texas.
Ms. Jones describes these policies as "often secret" and "taken out by companies on unwitting employees, which can yield sizable corporate tax breaks." In her article, Ms. Schultz opens as follows: "For years, American companies have taken out life insurance on millions of their employees, harvesting tax advantages that fatten their coffers and collecting death benefits when they die. Now, some family members are crying foul."
The facts of the particular case in Texas are wrenching: A bank employee suffering from brain cancer allegedly being told he was eligible for $150,000 in supplemental life for which he enrolled. Shortly thereafter, he was fired by the bank and he died a few years later at the age of 41 leaving a wife and two young children. They received no life insurance because the supplemental policy terminated when he was fired. Some time later, the wife apparently received a check that was sent to her in error for over one and a half million dollars - it was payable to the former employer-bank that insured then fired her husband.
Of course, these issues are not new and the Wall Street Journal has covered them extensively in the past. The majority of comments to the blog post were on that fact. However, there were also general discussions of COLI policies and key person insurance vs. coverage on non-key employees. One commenter concluded, I believe erroneously, that "Currently, COLI is used primarily for masses of non-key employees in order to get tax benefits, a practice known as "janitor insurance" or "dead peasant insurance." Another commenter said: "I did not know that insurance companies issued life insurance policies on individuals without physical exams of the person to be insured. This sounds like a lottery. Can anyone get in or is this only for the "big" guys?" The world is a different place than the last time this issue surfaced.
I am certainly no litigator and I don't know if Ms. Jones and Ms. Schultz are right that there is an impending surge in these cases, but I do think that negative publicity around life insurance generally couldn't come at a worse time. I hope that as the discussion around the future of insurance regulation develops, these are not the type of facts and policies that dominate the press coverage. It was "bad" facts such as these and publicity generated from those facts that gave the SEC the justification they needed to sweep indexed annuities into their jurisdiction based on the need for additional consumer protection.
In today's edition of Investment News, an interview with NY Superintendent of Insurance, Eric R. Dinallo, is published. The full published interview can be seen here. Much of the discussion focuses on annuities and he says that "the next big issue for the insurance industry" involves "adjusting the balance between term life and annuity sales." He goes on to state that this year he needs to "focus on a better concept of appropriate guarantees. Under the law, guarantees have certain floors. We need to review those laws and regulations to see if we can tune up the world of annuity sales."
In an analogy that seemed to come a bit out of left field for me, he compared the sales of annuities to sales of those old Econ 101 products: widgets. When pressed for an explanation he stated that: "With an annuity, you're buying a piece of an asset management pie, and you better have the right asset managers who can take in the proceeds and guarantee a certain yield. The last time I checked, that's a fairly sophisticated and difficult undertaking."
Though my undergrad degree is in Economics, it has been a very long time since I looked at the widget market. However, Mr. Dinallo's emphasis on the sophisticated and difficult nature of asset management seems to make annuities quite different from widgets. If I remember correctly, one reason widgets are often used for this basic study is that they are fungible and it doesn't matter to the consumer who produces them. That allows for inquiry into barriers to entry and supply and demand as the forces of pricing. Those seem to be quite different than the issues in sales of annuities - particularly sales of variable products with some guarantees - and his point that it may matter a great deal who is managing the assets.
I am very glad to hear that there will be a focus on resolving the long-outstanding and unresolved standards for variable annuities with guaranteed living benefits! Having clear standards and a basis for a level playing field in this area is long overdue. However, if regulation of these benefits is really approached from the perspective that annuities are more like widgets than insurance, I am left not knowing what to expect!
In Circular Letter 2 (2009), the NYSID announced that the NY Deficit Reduction Plan requires that the Superintendent impose an additional assessment on domestic insurers. It appears that these bills are going out immediately because the State Finance Law states that payment is due within 30 days of receipt of the bill and the Circular Letter indicates that any payment postmarked after March 13, 2009 will be considered late and penalties may be assessed accordingly.
The Texas Department of Insurance has prepared a working draft of rules for minimum standards of Medicare supplement policies. The proposals are designed to bring Texas' regulation in line with the revisions to the NAIC model. In addition to new mandates that result form the Medicare Improvements for Patients and Providers Act of 2008 and the Genetic Information Nondiscrimination Act of 2008, the Texas amendments also change group filing requirements.
The new rules will make out-of-state group policies subject to the same filing requirements as in-state group policies.
In the e-mail notice sent to interested parties, the TDI makes clear that this is not a formal rule-making act, but a request for informal comments. These informal comments are requested by 5:00 pm February 16, 2009 to the attention of Ana Smith-Daley. Her e-mail address is Ana.Smith-Daley@tdi.state.tx.us.
After being unanimously confirmed by the US Senate, Mary Schapiro was sworn in today as Chairman of the SEC. In her statement she said the following, as reported in a press release from the SEC:
"Seventy-five years after this great agency was founded, the SEC must play a critical role in rebuilding investor confidence, reviving our markets, and rejuvenating our economy. I’m honored and grateful to be entrusted with leading this agency during such an important time – when the SEC must effusively be the investor’s advocate. Working with my fellow Commissioners and the agency’s talented staff, we will be committed to reinvigorating a financial regulatory system that must protect investors and vigorously enforce the rules. We will work to deepen the SEC’s commitment to transparency, accountability, and disclosure while always keeping the needs and concerns of investors front and center.”
While not mentioning insurance in this statement, Ms. Schapiro has been outspoken in her advocacy of increased regulation of insurance by the SEC. In her previous positions as CEO of FINRA after leading the consolidation of the NYSE and NASD into FINRA, and Chairman of the Commodity Futures Trading Commission, nothing jumps out as an obvious source of experience in regulating products that have the kind of guarantees that are typical of insurance products.
An unusual dilemma for life insurers posed by NY law was once again addressed in a NY Office of General Counsel opinion dated December 30, 2008. NY law does not include in the types of licenses available, an independent adjuster license for life insurance. The 12/30 opinion states: "The processing of life insurance claims, unlike other types of insurance claims, typically requires little discretionary authority on the part of the person or entity handling such claims."
While that may be true for simple uncontested death claims, there are many benefits that are added to life insurance and annuity products that are not as clear cut as whether the insured is dead or not. There are waiver of premium riders based on disability, there are accelerated death benefits based on various health conditions or life expectancy, and other benefits that may require that discretion be applied. This is acknowledged in the opinion.
However, without the availability of an adjuster's licence, that often-necessary discretion can only be exercised by a limited number of individuals with a direct relationship to an authorized NY insurer. Without the independent adjuster license, employees of another insurer, affiliated with the NY company but not licensed as a NY insurer, cannot exercise discretionary authority in claims processing.
In the words of OGC: "Since [the unauthorized life insurer] does not come within any of the statutory exceptions, it may only perform ministerial functions with respect to the processing of life insurnace on behalf of [its affiliated NY-licensed life insurance company.]"
Due to the number of NY-only life insurers, this is often a problem that arises when there is a limited number of employees of the NY company.
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."
This week has brought more developments with respect to SEC/federal regulation of insurance.
In yesterday's confirmation hearings for President-elect Obama's nomination for chairman of the SEC, Mary Schapiro, there was discussion of federal regulation of insurance. What, to me, was the most interesting was Sen. Shelby's, ranking Republican on the Senate Banking Committee, use AIG as his justification. He reportedly stated: "I never thought I would say this, but I think we have to visit insurance - look at AIG. Who regulated AIG? Primarily the New York State insurance commissioner. My gosh. Does anybody in this room believe the New York insurance commissioner knew anything of the risk they were taking?...The answer is obviously, 'no'."
What? AIG? An example of how state regulation of insurance failed? What about the AIG holding company? Where do we see an example of where federal regulation succeeded? Who in any of the federal regulatory agencies knew anything about the risks that the federally regulated portion of AIG was taking? If they did know of them, what steps were taken to protect the public? Who in any of the federal regulatory agencies knew anything about any of the risks the bailed out banks were taking? If they did know of them, what steps were taken to protect the public? If we were to judge federal regulators by their recent record of regulating financial services companies, they would not be allowed to regulate much of anything!
It seems that some members of Congress are of the opinion that they will be able to put together an effective regulatory scheme this time around. We, apparently, are to take that on faith.
Of course, there will be a new administration next week and perhaps they will be able to put together something new and different: effective financial services regulation. But in the midst of all of this financial carnage, can't Congress and the federal agencies stick to fixing what is already on their plate first? Perhaps when they have a proven track record of regulation of the other financial services branches, it would make sense to add some insurance regulation, but until the federal government demonstrates that they can regulate better than they have so far, it seems quite premature to add anything new to their jurisdiction.
In Governor Paterson's first "State of the State" address, he proposed, among other things, requiring group health plans to make employee-paid dependent coverage available to age 29. The Governor stated that getting coverage through a group plan is generally cheaper than getting health coverage any other way. Given that, according to his statistics, 31% of NY's uninsureds are between 19 and 29, this mandate would make less expensive coverage available to this large group.
While presented as a mandate, it is important to note that his proposal does not require employers to offer dependent coverage. Likewise it does not require employers to pay for dependent coverage.
As the parent of a teenager who will be entering the workforce before I know it, I like the idea of having another option available for coverage. However, as a small employer I know first-hand the very real challenges of providing quality health care coverage for my employees. If economic times remain hard, it seems inevitable that the general availability of employer-based health insurance will be impacted, even when paid by the employee. Also, with the number of lay-offs happening to older NY'ers, it seems quite likely that the uninsured at older ages will increase relative to those younger folks. It is always good to have options on the table, but even when combined with the other proposals made by the Governor in his speech this week, it seems unlikely the effect will be significant enough to address the real health care coverage problems facing New Yorkers in these difficult times.
NY has recently issues Circular Letter 27 (2008) dealing with same-sex spouses. I sent the following e-mail to Mr. Dumar this morning:
As you might expect, there is a fair amount of discussion "out there" this morning about the new Circular Letter. A number of listservs are chatting about the significance for annuities, in particular. In the context of life & annuity filings, the question the life insurance industry has is whether or not NY now mandates that insurers treat same-gender spouses the same as opposite-gender spouses for purposes of continuation of the contract after death of an owner. As you probably know, the answer is crucial, as it relates directly to IRC 72(s) compliance and the tax-deferral treatment of inside buildup of non-qualified deferred annuity contracts.
If the Dept requires same-gender spouses receive the same contractual continuation rights upon death of owner as opposite-gender spouses, then the industry will have to eliminate spousal continuation rights completely. This is because (state-law-governed) annuity contracts are treated as annuity contracts for federal income tax purposes ONLY if their terms comply with the continuation after death of owner rules in IRC 72(s). As you know, the IRC is subject to the Defense of Marriage Act (DOMA), which limits the application of the words spouse and marriage to the opposite-gender context. In short, the IRC disqualifies deferred annuities if they provide for any continuation after death of owner to any person other than an opposite-gender spouse, regardless of what may be permitted or required by state law.
In recognition of the threat to the tax deferral treatment of annuities for the entire deferred annuity market, the Vermont Insurance Dept issued guidance to the effect that insurers were to treat same-gender parties to a civil union the same as opposite-gender spouses, except in the context of the continuation upon death feature.
http://www.bishca.state.vt.us/InsurDiv/regsbulls/insregs/REG_I-2000-1.PDF
http://www.bishca.state.vt.us/InsurDiv/regsbulls/insbulls/BUL128.htm
The more broadly the continuation rights are applied, the greater the opportunities for tax deferral, so most of the insurance industry would be thrilled to extended continuation to same-gender spouses. However, unless DOMA is repealed, the consequences of post-death continuation being so extended are potentially catastrophic for every holder of a deferred annuity.
While companies continue to wrestle with the implications of MA's new unisex law for annuities, there is another new law that may impact the application process, underwriting and claims.
MA has amended Chapter 175, sections 186 and 186A to add a materiality requirement when there is a purported misrepresentation as well as to add clarity in when it can be deemed that there is a material misrepresentation. Section 186A now states that in litigation, where there is a factual issue regarding the health of the insured at policy issuance, there is a presumption that the insured was in good health if the insurer in fact delivered the policy. Section 186 (b) states that a "misrepresentation or warranty shall be deemed material if knowledge or ignorance of it would otherwise have influenced the insurer in making the contract at all, or in estimating the degree and character of the risk, or in fixing the rate of premium."
This change appears to put a greater burden on an insurer at policy delivery to inquire as to the insured's good health. However, an open question seems to be how much inquiry into health status can be made at that time, particularly if money was collected with the application.
The New York State Insurance Department recently issued "Equity index annuity contract or life insurance policy paid dividend disclosure under Section 3209(b)(2)(C)."
Section 3209(b)(2)(C) was amended in the last legislative session to require a disclosure statement "indicating whether paid dividends are included in changes in the equity index, together with a description of how such dividends, or lack thereof, would affect the changes in the equity index; the statement must provide the average dividend rate over the lesser of ten years or the calculable life of the index." The guidance issued is to assist in "calculating and communicating" the average dividend rate.
Several companies have posed questions to us over the last couple of months regarding the nature and timing of such disclosures. In addition to providing a sample of satisfactory disclosure, the guidance states that the communication is required "by the first of the month following the end of the latest completed calendar year (i.e., by February 1 the average dividend rate for the most recent 10 completed calendar years would be provided in the disclosure required by Section 3209(b)(2)(C))." Adding the required disclosure to these annual statements for indexed products (remember this applies to both life and annuity products) could take significant programming for some companies, so prompt attention to this guidance is strongly recommended.
Companies can be sure that the Department will be asking to see these disclosures during post-approval reviews, market conduct exams or upon receipt of a consumer complaint.
The New York State Insurance Department recently posted Guidance for Illustrations of Variable Annuity Contracts on their website. This guidance is in response to inquiries received on Regulation 47's statement that "Except as approved by the superintendent, no hypothetical rate of investment return in excess of eight percent may be used in such illustrations." The guidance is helpful in that it does permit gross rates in excess of 8%, provided that in any year the accumulation at the gross rates used in the illustration does not exceed accumulation at 8%. A sample calculation is provided.
However, it is more troubling that the guidance also appears to be a step towards using Regulation 47 in a whole new manner: to regulate variable annuity illustrations. It concludes with the statement that "Circular Letter 6 of 2004 may be used for filings with illustrated forms that conform to the above guidance regarding variation in the eight percent rate in illustrations. The submission letter should indicated that the forms are illustrated and this Guidance should be cited."
In stating a relatively simple rule, the guidance glosses over more complex issues about how that provision applies to today's products. The primary problem is that Reg 47 is tremendously outdated, having been promulgated in 1970. In all likelihood, many people making submissions to the NYSID were not even born when this regulation was drafted! Its revision has been on the NYSID's regulatory agenda for well-over a decade. Trying to apply regulatory concepts set down almost 40 years ago to products being developed in late 2008 and beyond ends up looking like contortionism.
The discussion in this guidance ignores a number of the old regulation's definitions that are important for understanding the regulation as a whole, and section 50.8's limits on illustrations specifically: the difference between a separate account annuity contract and a variable annuity contract and the pivotal rate of investment return to name just a couple. Likewise, there is no mention of the clear exemption in section 50.8 which states: "Nothing herein contained shall prohibit the use of hypothetical rates of investment return, clearly designated as such, to illustrate possible levels of variable annuity payments, if the use of such hypothetical rates is not in conflict with applicable requirements of the Securities and Exchange Commission."
This guidance creates a brand new requirement for a statement regarding the illustration of annuity products. Unlike for life insurance, there is no illustration regulation that specifically requires that notification. There is no definition of an annuity illustration or what other standards may be applied to annuity illustrations once flagged in submissions. This raises concerns about the openness of the regulatory process. If NY is going to regulate annuity illustrations, something contemplated by the long-ago revisions to section 3209 of the Insurance Law, then there should be a fully vetted regulation that addresses today's products and makes sense in the modern annuity world.
Recent Department exams and post-approval reviews have focused increasingly and piecemeal on annuity illustrations. This appears to be another step down that path. While the specific statement that hypothetical rates of investment return which vary from year-to-year is welcome, only time - and Department actions - will tell if this guidance ends up being something that is helpful to companies genuinely striving for compliance.
It is time for Regulation 47 to be revised once and for all. If annuity illustrations are to be regulated, a regulation following the mandated administrative process should be promulgated. Regulation 47 should be put into the history books, not allowed to have a 40th anniversary. Let's have a regulation that fits the products, not try to fit products to an antiquated standard.
RIP Reg 47!
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There was a change to the NY Insurance law, effective 10/5/2008. The amendment provides for a 61-day grace period for UL-type policies and it changes the grace period notice provisions as well. After the law became effective, the NYSID posted a Circular Letter on their website with guidance to the industry on required policy form changes.
Note that the Circular Letter states explicitly that a policy form containing a grace period other than as required by the new law and a policy form that contains a notice of grace period other than as set forth in the new law is not in compliance with law. This likely means every company's entire UL and VUL product line is out of compliance as of 10/5 based on the Department's interpretation.
I think this interpretation is very unfortunate given the very short time frames of this statutory change. While the 61-day grace period might, in theory, require a policy form change, 61-days has been the standard in the industry for quite some time. There are few companies that will need to revise their policies on that issue.
The notice requirement is different. The change to the notice provision was designed to bring consistency to previously inconsistent provisions of law. But due to the inconsistency, many companies had already worked their systems to reconcile the two and issue a single notice to comply with both timing requirements. A company with the previously-mandated language in their policy could clearly comply with the new law without revising the policy language because the time periods overlap. If some action was necessary, the Department could have mandated an assurance that companies would do so. But that appears to be water under the bridge at this point.
Instead, the Department has demanded a flood of policy forms to process. They have indicated that the endorsements and new forms submitted to comply with their interpretation will be given priority in the CL6 process and the Circular Letter sets forth the submission requirements. However, it is unclear how that can really be the case.
CL6 already is the expedited process. It is not as though the administrative folks at the NYSID are sitting on those filings or have nothing else to do. There was no indication that any new people will be brought in to handle all these filings. I know my office alone is working on close to 100 policy forms already that are impacted and either have been filed or will be filed shortly. Who will handle these at the NYSID? And if they are being expedited by the people who usually handle the CL6 filings, who will review those non-expedited CL6 filings? For those companies still working on 2001 CSO filings, will this new influx of expedited submissions bump those? How many expedited processes can really be on the table before the word "expedited" loses all meaning?
Speaking at the LHCA Conference in Boston on Friday, Commissioner Burnes addressed a participant question regarding the unisex annuity legislation, discussed here previously. The commissioner wanted to make sure that all attendees realized this was not a Division initiative and that they were doing what they could to mitigate the challenges of the fast-approaching implementation date of 1/1/09, but she also advised that companies would need to go to the legislature for relief as the Division's hands are tied by the terms of the new law. She indicated that she would be meeting with LIAM Representatives tomorrow and directly with companies later in the week.
As I continue to talk to companies about this, it is clear that there are those who do not realize that this legislation differs significantly from that in Montana, in that it is extra-territorial with respect to MA residents. In this forum, I previously addressed some extra-territorial situations, but another that seems to be equally troublesome would occur when an individual has purchased an annuity in another state but then moves into MA. The law appears to require that individual get a new contract with unisex rates at that time.
With the well-known exception of NY's compensation laws, I do not think there has ever before been a state law that so directly challenged the standard provision in all life and annuity contracts, that the contract is subject to the laws of the state in which it is delivered. Even NY's compensation requirements are at least set at the time of issue, even though they are extra-territorial. Here, there is no certainty. What would happen to the person's contract described above if, after living in MA for a couple of years, s/he moves and is no longer a resident of MA? Does s/he retain the unisex rates? Does her/his contract revert to the original? Does it matter whether the original rates are more favorable or the unisex ones are? These are but a few of the questions that are likely to arise under the law scheduled to go into effect on January 1.
In the Capital Confidential blog this afternoon, Rick Karlin reports that NYS agency commissioners, including the Superintendent of the Insurance Department, have been ordered by Governor Paterson to "focus their operations on their agency's core mission." Gov. Paterson reportedly set "savings targets" for many state agencies.
The list that accompanied the post indicates that the Insurance Department has been directed to save $13,377,000.
That does not bode well for filling the staff positions necessary to get CL6 submissions moving quickly again!
The Massachusetts legislature recently prohibited, as of January 1, 2009, the use of sex-distinct mortality tables for individual or group annuities or pure endowment contracts. Several sections of the Mass Insurance Law were revised to state that "a mortality table shall only be applied to an individual or group annuity or pure endowment contract on a gender-neutral or gender-blended so-called basis in accordance with regulations promulgated by the commissioner." In addition, recognition of a difference in life expectancy in the terms or conditions of a group or individual annuity, pure endowment contract or certificate covering residents of the commonwealth which is issued or delivered within or without the commonwealth on or after January 1, 2009, including but not limited to the amount or method of payment of premiums, rate charges or in the benefits payable, is considered to be an unfair method of competition or an unfair or deceptive act under the new law. (Emphasis mine).
Note that the italicized text appears to expand the usual exercise of jurisdiction. This unfair practices section applies, on its face, to annuity contracts issued anywhere, if a resident is covered by the contract. For some companies this might mean that they need to have unisex annuity contracts approved in several states so that a unisex contract could be issued to a MA resident who legitimately applies for an annuity in another state, e.g. one who is employed in neighboring CT. If a CT application is completed, a CT annuity contract must be issued. However, if the applicant is a MA resident, even if the annuity contract is issued in CT, under the new law it must have unisex purchase rates. Therefore, the company needs an approved unisex contract for use in CT. After January 1, 2009, issuing a contract with sex-specific purchase rates to that MA resident would appear to be a violation of the new provisions of the unfair practices law in MA, even though the sale occurred in CT.
In a move reflecting state insurance departments' commitment to standardization, the Illinois DOI has issued a proposed regulation that will allow the use of the NAIC life Buyer's Guide in addition to the Illinois-specific one. An interesting part of this proposal is that it is expressly based on company requests as acknowledged in the proposed regulation: "This Part is being amended to allow insurers to use the National Association of Insurance Commissioner's (NAIC) Life Insurance Buyer's Guide as a substitute for the buyer's guide created by the Division of Insurance. Companies have asked to use the NAIC's Guide in order to maintain uniformity across states in which companies sell life insurance. Allowing for the use of either Guide in Illinois will improve the efficiency for the life insurer industry while maintaining consumer protections..." It is always welcome to see actions based on regulators' recognition that this type of requirement for state-specific documents adds significantly to the cost of doing business and inefficiency in product delivery. Kudos to the Illinois DOI!!
As of July 3, 2008, Joel Ario is now the full and confirmed, by a 50-0 vote, the Insurance Commissioner of Pennsylvania.
Those of us who do filings in PA, will need to make a change to the address block on submission letters, but since Ario has been Acting Commissioner for a year, not much else is likely to change significantly as a result of this confirmation.
Ario is one of a small number of insurance commissioners who have served in two states, having been Oregon's Insurance Administrator for 6 years prior to leading the PA Department.
Today a new law goes into effect regarding viatical and life settlements in Iowa, and the Iowa Insurance Division has issued a bulletin providing a high level discussion of some of the major changes to IA law, with guidance on how the law will be implemented.
Among other provisions, the new law bans newly defined stranger-initiated life insurance, or coverage initiated for the benefit of a third-party investor who has no insurable interest in the insured. The law has fraud provisions and gives authority for the Division to conduct on-site examinations of viatical settlement brokers and providers.
Annual reports from viatical providers are required by the law, the first being due March 1, 2009.
The Division indicates that while they are reviewing their existing rules, those rules remain in effect unless in direct conflict with the new law.
It is hot here in Austin for a NY girl! We are about half-way through and the Texas Department of Insurance Life, Health & Licensing Compliance Conference has been a good one so far, and well worth the trip. This morning I attended a session on Advertising Requirements and there was a very good discussion of new regulations and what some of those changes will mean in practice. I found the website discussion particularly helpful because it can be difficult to take regulations drafted for paper ads to the electronic medium. In addition, it that advertising session, I got to go back to my roots in a new and sure-to-be-a-hit "game show": "Think like a Regulator!"
The TDI has a lot of staff here and that is very nice to see --they have been very responsive and willing to answer any and all questions posed to them. The sessions on various product and filing issues have also been very informative and I will head back to the office (and the cooler temperatures!) with some good tips to help TX filings go more smoothly. The conference concludes tomorrow with a panel discussion and the opportunity to submit questions to the regulators who are here, so if any of you have a question that you would like to have asked, drop me an e-mail and I'd be happy to do my best to get an answer for you!
Those of us who attended the recent AICP NE Chapter Education Day at UNH experienced a great day in a beautiful location. The hotel and conference center were set in the woods as I have never seen before! As always it was a fun and informative event and more about it will be posted here in the days to come!
And while there were many substantive issues discussed, one announcement that made a lot of people's day was that MA is joining the growing number of states where SERFF is mandatory. However, it really wasn't the SERFF portion of the announcement that drew the most appreciation - it was the fact that at long last, MA is doing away - once and for all - with the lock box!!! Along with the move to mandatory SERFF, MA is going to mandatory EFT and thereby eliminating the administrative nightmare and the delays caused by the antiquated lock box procedure. A Bulletin was promised soon.
Yesterday, March 27, 2008, the NJ Governor, Jon Corzine, signed legislation that bans discrimination based on future travel. (Note that some reports of this legislation have described it as a ban on past or future travel, but this legislation deals solely with future travel.)
Unfair discrimination is defined in the law to mean: "any decision to issue, extend, or renew a policy of life insurance or the fixing of rates, terms, or conditions of a life insurance policy, on the basis of the individual's intent to engage in future lawful foreign travel, which is not based on sound actuarial principles or actual or reasonably anticipated experience."
On Monday, the Iowa Insurance Division issued a Press Release and Bulletin announcing the Annuity Disclosure Template Pilot Program for Fixed Annuities, Including Indexed Annuities, Sold in Iowa. This pilot program, using ACLI disclosure templates, began on 1/28/08, but companies can begin whenever their system modifications are complete, according to the Bulletin. Current disclosure forms can be used until those system modifications are complete and the new ACLI template disclosure forms are available.
The Bulletin specifically states that it is not necessary to use the template forms for all products sold in Iowa.
The Iowa Insurance Division must be notified of participation and they have set up a dedicated e-mail for this purpose. The address is annuity.project@IID.state.ia.us.
The Iowa Division and the ACLI have indicated that the templates will be evaluated during the one-year pilot project and modifications may be made to the templates, if necessary, during that time.
On January 10, 2008, the Connecticut Insurance Department issued Bulletin S-11 on "longevity annuities", or annuities without death benefits prior to annuitization.
The Bulletin includes required sales practices , which include a requirement that a similar deferred annuity with a death benefit be offered and that 3 different illustrations be generated on a case-by-case basis. Policy form requirements are also included.
The Department indicates that a deferred annuity without a death benefit will only be approved when it complies with the Bulletin. The Bulletin does not apply to group annuities purchased under a retirement plan or deferred comp plan established or maintained by an employer or an employee organization.
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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