Speed to market is a perennial hot topic as insurers hasten to meet pent-up product demand in key markets. New York, Texas, Illinois and several other states are responding by accelerating product approvals through “certified filings.”
The theory behind certified filings goes something like this: If a company officer certifies that the forms comply with state insurance laws, the usual forms filing and approval processes may be abbreviated or, in some cases, even waived based on that certification.
Illinois only recently adopted the use of certified filings. Other states, including New York and Texas, have had such procedures in place for years. Here is a roundup of their key initiatives:
New York: New York created several speed to market initiatives in the past 10 years. In 2004, it introduced Circular Letter #6. CL6 form approvals are based on the department’s acceptance of a unique compliance certification signed by a company officer. The officer certifies that the filed forms comply with state insurance laws, regulations and circular letters, including nonforfeiture laws.
About 70% of all life insurance and annuity form submissions in New York are now filed via CL6. However, a high percentage of CL6 filings are rejected, often due to improperly completed certifications and cover letters, certification forms, and other procedural issues. After resolving these issues, most CL6 submissions are approved.
The New York Department started a post approval audit of CL6 submissions to determine whether these submissions are actually in compliance with actuarial requirements. As a result of post-approval reviews, the department contacted a number of insurers about their CL6 filings. Such reviews may generate comment letters from the legal and actuarial divisions. Response is required within 15 calendar days for each comment letter.
It behooves companies to respond thoroughly and promptly to the comment letters. CL6 noncompliance can result in “corrective and disciplinary action including retroactive modification, as authorized by law” against the company and officer completing the certification.
Practicing safeguards before filing is the best way to avoid significant post-approval review comments. These safeguards may include assuring that published product guidelines are always reviewed, and giving particular care and attention to the state’s actuarial requirements.
Texas: Texas Regulation 28 TAC ? 3.4004 allows exemptions for certain life, accident, health and annuity forms from review and approval.
Exempted forms include term and ordinary life policies, waiver of premium riders, term riders, etc. Such forms must still be filed with the Texas Department of Insurance as “exempt” and certified as such using the Texas Transmittal Checklist. Upon acceptance, Texas sends a signed confirmation including the State Filing ID number, form number, action date and the exempt action status.
Not commonly known: Texas audits about 5% of all exempt form submissions each year. Such audits may result in comment letters and perhaps even action against companies for noncompliance.
Texas recently introduced a Voluntary Product Checklist Pilot Project. Running from April 1 to September 28, 2007, it includes speed to market incentives if checklist(s) are completed for each nonexempt form submission.
Illinois: Illinois recently issued Bulletin 2007-01, Efficiency Changes in the Filing Process for Life Insurance and Annuity Policy Form Submissions. Effective March 1, 2007, this implements an optional “certification process” for life and annuity forms and rate filings. It offers an excellent opportunity to improve speed to market initiatives in Illinois.
The Illinois bulletin outlines required compliance procedures for the certification process and penalties for noncompliance.
Not all filings can be submitted using the certification process. For instance, combination filings with both life and health benefits (e.g., credit life and disability policies, and life or annuity policies with long term care riders) must be submitted using the prior approval process. Prior approval of policy forms, rather than certification, may also be required if “deemed appropriate for the protection of policyholders and in the public good.” So Illinois reserves the right to require the prior approval process. To ensure compliance, director audits will be conducted randomly.
In summary, the New York, Texas and Illinois state certification processes provide a viable method for product filings and a faster means of introducing products to market. However, potentially serious consequences exist if filings and/or products are determined to be out of compliance. The pros and cons must be weighed carefully.