It is still open to question whether tighter wording in a proposed change to a replacement model regulation will ease concerns expressed by consumer advocates regarding regulatory oversight of term conversions among corporate affiliates.
The concern focuses on a proposed change to the Life Insurance and Annuities Replacement model regulation, first adopted in 1997 by the National Association of Insurance Commissioners, Kansas City, Mo.
The model was developed in response to questions that arose during the mid-1990s about how major companies replaced contracts. The broad intent of the model was to establish guidelines that would control the replacement process.
The model language says 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.”
An NAIC working group agreed to add the specific language “or when a term conversion privilege is exercised among corporate affiliates.”
The Life Insurance and Annuities “A” Committee is expected to take the matter up during the spring NAIC meeting in Orlando when it meets on March 5.
The changes were advocated by MetLife also to exempt term conversions within the same corporate family given the consolidation taking place in the industry. Indeed, MetLife is part of that consolidation trend having, in the last decade, absorbed New England Financial, General American Life Insurance Company and, most recently, Travelers Life & Annuity.
The change also has the support of the American Council of Life Insurers, Washington; the Life Insurers Council, Atlanta; and Prudential Financial, Newark, N.J., as well as others.
Consumer advocates, however, say that disclosure to consumers is a necessary consumer protection and that even if the conversion is with an affiliate, a consumer needs to receive the proper disclosure. A consumer needs to be aware of any replacement of a contract, and the affiliate proposal would go beyond the scope of term conversions and would be applied more broadly, these advocates say.
During the discussion MetLife argued that exempting term conversions among affiliates would not result in any harm to a consumer by creating new stipulations such as new incontestability periods, new surrender charges or new medical underwriting requirements.
There would be no loss of cash value since the conversion would be from a term contract to a whole life contract at the end of the term contract and at the discretion of the consumer, explains Linda Lanam, ACLI vice president–annuities and market regulation. So, a policyholder would have the option of converting or letting the insurance end, she continues.
But Birny Birnbaum, executive director with the Center for Economic Justice, Austin, Texas, says he is concerned that new wording could be applied more broadly to contractual provisions.
And, Birnbaum notes that with 42 companies today that have five or more life insurance affiliates within their corporate structure, the change could affect a large number of companies and their contract holders. Birnbaum also says that if a company has many affiliates, at least one or two of those affiliates may have a different corporate strategy than the others.
Informing a consumer that a conversion would be with another affiliate is important, says Joseph Belth, editor of the Insurance Forum, Ellettsville, Ind. The reason, he explains, is that the transfer conversion could be made from an affiliate with a higher financial strength or claims-paying rating to an affiliate with a lower rating.
In addition, Belth explains that there is no assurance that the affiliate company the insured’s conversion is made with will remain part of the corporate family. So, he continues, the possibility exists that the transfer could in effect be made from one company to a separate company.
But Tom Considine, vice president-government relations with MetLife, says that could be true of any company.