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Regulation and Compliance > State Regulation

Debating The Next Step On Multiple Policies

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Debating The Next Step On Multiple Policies


Amid a charge by a consumer advocate that state insurance regulators are “inept” in how they are handling regulation of payment of small face amount policies and multiple policies, regulators continue to weigh different approaches to the issue.

The issue will receive further discussion during the spring meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

For over a year the NAIC has been trying to create regulatory guideposts to ensure that policyholders of small face amount policies, those with face amounts of $15,000 or under, receive a reasonable benefit for premiums paid.

The issue of payment of multiple policies was partly raised because of findings by the Illinois insurance department that companies had not conducted proper searches for owners of multiple small policies to make sure benefits were paid. Consequently, the Illinois department instituted a regulation to address this issue that becomes effective July 1.

In a NAIC model regulation currently being exposed–the Life Insurance Multiple Policy model regulation–a safe harbor provision is offered as an alternative to requirements in the model. It is modeled after the Illinois regulation.

The issue, insurers say, is that they do not want to be held to specific criteria that could be referenced by plaintiffs attorneys. They add that they are willing to address problems where they exist. However, they say they want a broader standard of reasonableness that would allow them to use existing systems to search for policyowners.

Toward that end, three trade groups–the American Council of Life Insurers, Washington; the Life Insurers Council, Atlanta; and the National Alliance of Life Companies, Rosemont, Ill.–signed a proposal that would draw from the idea of reasonableness as well as from a circular letter issued by the New York insurance department in 2001.

The circular letter, Number 15, effective July 1, 2001, requires a company to use reasonable methods to make sure that appropriate searches are made to ensure payment on policies.

The trade groups proposal, signed on Feb. 11, states that they “want to ensure that claims are paid on multiple policies and that companies have procedures in place to achieve that goal.”

The groups offer an alternative approach that would remove the safe harbor from the regulation and refer the search requirements of the current safe harbor language to another group of regulators as an example of possible search criteria for use by market conduct examiners.

The benefit, according to the proposal, would be that companies could continue using different procedures and regulators could develop appropriate examination procedures for the examiners handbook to monitor companies.

But Birny Birnbaum, executive director for the Center for Economic Justice, Austin, Texas, disputed the proposal from insurers and chastised regulators. The idea that regulators would after a year of discussion consider a new proposal right before a decision was made “makes a case for federal regulation based on how inept they are.”

The industry, Birnbaum says, is calling for a proposal that is “nonuniform and nonefficient.”

“Why is it taking so long? What are you going to do?,” Birnbaum asked regulators.

Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 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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