NU Online News Service, March 21, 2003, 5:09 p.m. EST – Members of the National Association of Insurance Commissioners, Kansas City, Mo., have cut a controversial “safe harbor” provision from the Life Insurance Multiple Policy model regulation.

The model, which has been debated for about two years, would set standards for life insurers that learn contract holders have died. If states adopted the regulation, life insurers would have to check their records thoroughly to see whether they had sold two or more contracts to deceased contract holders.

The NAIC’s market conduct working group began looking at the issue while studying reports of marketing problems involving life policies with small face amounts.

Consumer groups say the model would help beneficiaries collect the benefits that the contract purchasers have paid for.

Oklahoma Insurance Commissioner Carroll Fisher eliminated one possible barrier to final approval by making a successful motion to remove the safe harbor provision.

The provision would have described “required” search criteria and “optional” search criteria. The required search criteria would have required insurers to do electronic or manual searches using different combinations of a dead insured’s first name, middle name, last name and initials.

The optional search criteria would have included the insured’s sex and Social Security number, as well as possible dates of birth within two years of the date given on the claim form.

Insurers could have satisfied the requirements in the model by following the safe harbor standards, but insurers argued that plaintiffs’ lawyers would treat the safe harbor standards as minimum standards and use them against the industry.

Fisher tried to get around that problem by replacing the safe harbor provision with a request for the NAIC market conduct working group to develop search standards for state regulators’ market conduct examination handbooks. The model regulation itself will now focus on a general requirement that life insurers conduct a reasonable search for multiple policies.

Birny Birnbaum, an NAIC-funded consumer representative and executive director of The Center for Economic Justice, Austin, Texas, objects to the change.

“The dynamic today is unfortunately, a recurring event,” Birnbaum says. “There is a shift of gears, projects are dropped and the bottom line is that nothing of substance is done to help consumers.”

Insurers have not shown that the safe harbor standards would become de facto minimum standards, Birnbaum argues.

If the NAIC eliminates the safe harbor provision, it ought to replace it with some kind of numerical standard rather than a “reasonable” standard, Birnbaum says.