What should a financial services company say when it is replacing term life policies issued by one corporate affiliate with term life policies issued by another corporate affiliate?
Regulators on the Life Insurance and Annuities Committee at the National Association of Insurance Commissioners, Kansas City, Mo., plan to consider that question next week, at the NAIC’s spring meeting in Orlando, Fla.
Life insurers are asking the NAIC to ease the rules for intra-corporate family term conversions by changing the Life Insurance and Annuities Replacement model regulation.
The NAIC adopted the replacement model in 1997, in response to waves of replacements of life and annuity contracts that took place in the mid-1990s. Regulators wanted to establish guidelines to control the replacement process.
One section of the model provides that the model does not apply when “an application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner.”
The proposal now under consideration at the NAIC would add a section stating that a term conversion would be exempt from the usual replacement rules “when a term conversion privilege is exercised among corporate affiliates.”
Backers of exempting sister company term conversions from the usual replacement rules include MetLife Inc., New York; New York Life Insurance Company, New York; and Prudential Financial Inc., Newark, N.J.
The proposed change also has the support of the American Council of Life Insurers, Washington, and the Life Insurers Council, Atlanta.