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Race-Based Exams Gain Momentum

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An investigation of the sale of race-based premiums should result in some settlements very soon, according to Texas Commissioner Jose Montemayor.

During the winter meeting of the National Association of Insurance Commissioners here last month, Montemayor said an initial phase of an investigation of the race-based premium working group identified 93 companies that should be examined. The Texas commissioner spearheads the effort to rectify race-based premium practices.

[Since the NAIC meeting, the South Carolina insurance department has taken action against two insurers on this issue. See NU, Dec. 24/31.]

In order to trace violations, which Montemayor said could number in the thousands, records had to be searched as far back as 50 to 70 years.

During a session of the race-based premiums working group, a rundown of the investigation’s progress was discussed. Of the 93 companies examined, 22 companies have had an initial review, 29 have examinations planned or scheduled by one state or a group of states, and 17 have resolved any questions without a financial examination.

Attendees were also told that 13 companies have examinations in progress, nine companies’ exams have been completed but not finalized, two companies’ exams have been finalized and one company has a regulatory hearing pending. The two companies with finalized exams are American General Life Insurance Company, Houston, and Philadelphia United Life Insurance Company, Bala Cynwyd, Pa., attendees were told.

The Texas department is also launching a study of the marketplace for small face amount life insurance. The department is mandated to report findings on or before Jan. 1, 2003 and is targeting October 2002 for completion of the report.

Mike Boerner, a life actuary with the department, said a public meeting later this month will follow internal department work on the project.

The report will evaluate:

–The relationship between the pricing of life insurance policies with small face amounts and the value received by insureds;

–Whether actuarial and expense experience supports the pricing of life insurance policies with small face amounts;

–Whether adequate disclosure is made to consumers regarding the relationship between the pricing of life insurance policies with small face amounts and benefits received;

–The suitability of the sale of multiple policies to one insured;

–And, whether statutory changes are needed or desirable.

The work in Texas may be able to draw against work done by an actuarial subgroup during the development of the Small Face Amount Life Insurance Policies Model Act.

The model was voted out of the working group to the Life Insurance and Annuities (A) Committee.

Before the model was adopted, both insurers and consumer advocates weighed in one more time on the issue of disclosure in the model.

Brenda Cude, a funded consumer representative with the University of Georgia, expressed “very grave doubt about generic disclosure.”

Other consumer representatives also expressed concern about the model. During a meeting of the NAIC/Consumer Liaison Committee, Birny Birnbaum, a funded consumer representative and executive director of the Center for Economic Justice in Austin, Texas, said the working group had abandoned its charge and ignored information from an actuarial group that offered insight into the prevalence of premiums exceeding small face amounts in policies.

But South Carolina Director Ernst Csiszar said that issues such as disclosure had previously been aired, that the model was a good one and that the group needed to adopt the model. The working group left open the possibility that issues could be revisited.

Insurers expressed general support for the model, but also concern about retroactivity, calling it “a Trojan Horse in regulation.” They urged that a drafting note look at the issue prospectively.

Scott Cipinko, executive director of the National Alliance of Life Companies in Rosemont, Ill., said that making the draft prospective was important to small companies. On the issue of multiple policies and benefits paid out, Cipinko added that the cost of regulation needs to be weighed against its benefits.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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