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

We are starting to get a significant number of questions regarding  the product design implications of the recent changes to the NY Insurance law with respect to group key person life insurance. 

Without going into a lot of detail on what has been a complicated problem for life insurers in this market,  the new law - which was effective immediately - now permits group corporate-owned life insurance, where the insurable interest is established based on "lawful and substantial economic interest."    COLI can now be written on a group basis in both the "true COLI" market where insurable interest is established by statute to permit funding of nondiscriminatory employee benefit plans as defined by ERISA, and in the "key person" market where the insureds are often highly compensated employees. 

The new law requires that the employer notify the proposed insured in writing of the intent to insure, and that the policy holder will be a beneficiary on the death of the insured.  The insured must consent in writing to the coverage. 

The ability to write these policies on a group basis affords much more flexibility in product design.  No where is that more significant than in policies offering private placement investment options.   When writing on a group basis is feasible, this legislative change offers new possibilities for policies with more restricted liquidity than is permitted on individual variable life products. 

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A conference is being held at the American Enterprise Institute tomorrow (7/9/08) on the "Future of Insurance Regulation." Coincidentally, the US House Financial Services Subcommittee on Capital Markets and Insurance is also meeting tomorrow  to mark-up proposals of H.R. 5840, the Insurance Information Act, which would establish an Office of Insurance Information within Treasury, "NARAB II", a national system to process non-resident producer licensing, and the Increasing Insurance Coverage Options for Consumers Act.  

Of course I follow the discussions of federal vs. state regulation of insurance, but one of my frustrations with what I often read and hear is the assertion that federal regulation represents efficiency, with the optional nature of a proposed federal charter representing competition among regulators. State regulation on the other hand is generally presented as immovable and irretrievably mired in inefficiency and insensitivity to competitive demands.   This appears to be the dominant theme at the AEI conference, yet it seems simplistic to me in several ways.   One of them is that when we make such a comparison, we are looking at a system that has yet to be fully conceived versus one that has a very long and complicated history.  Who among us can't dream?  The challenges obviously arise when systems are implemented and develop and are presented with difficult decisions and must draft regulations and deal with real life on both a day-to-day basis and in crisis.  Then inefficiencies and bureaucracies begin to take hold and grow.  I have not yet read or seen any reason why a federal agency would not completely dominate an alternative state system and simultaneously grow to become large and inefficient. 

But there is another option that has been proposed by some that I hear much less about, but which I find very interesting.  This option is called the Single-License Approach to Regulating Insurance and it is discussed in a paper authored by Henry N. Butler, Executive Director of the Searle Center on Law, Regulation and Economic Growth at Northwestern University School of Law and  Larry E. Ribstein, the Mildred van Voorhis Jones Chair in Law at University of Illinois College of Law.  The paper  is available for download at no charge from the Social Science Research Network. 

One of the comparisons with insurance regulation that I found interesting in this paper was that with corporate chartering and a more real jurisdictional competition.  We have all heard the banking comparison, but in looking at corporate chartering as another alternative with which to compare, a single license approach emerges that, to me, seems to offer a real and viable alternative to the overwhelmingly dominant federal regulation movement. 

 

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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. 

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