The annuity business in Massachusetts will stop using sex-distinct rates, as of January 1, 2009.
That’s when a new law–S.B. No. 2729–goes into effect requiring gender neutrality in individual and group annuities sold to Massachusetts residents. This neutrality applies to all annuity terms and conditions, including premiums and benefits.
The law stipulates that Massachusetts residents are covered by this law whether their contracts are “issued or delivered within or without the commonwealth on or after January 1, 2009.” (See sidebar.)
“The Act’s rapid effective date and scope has surprised both insurers and Massachusetts state insurance regulators,” says Tim Pfeifer, an actuary and president of Pfeifer Advisory, LLC, Libertyville, Ill.
It also has also raised a number of key unanswered questions that need regulatory clarification, he says.
Darrell Lamar, a spokesperson for the Executive Office of the Department of Housing and Economic Development, Boston, says state officials are working on developing regulations to implement the Act now. Several meetings with key policy stakeholders, such as legislators and department staffers, have already been held, he says, and “we are confident we’ll be able to meet the January 1st effective date.”
The Executive Office includes the Massachusetts Division of Insurance.
Cailie Currin, an attorney specializing in compliance work for insurance companies, hopes the regulations will clarify some “puzzling” aspects of the law.
It is a very broad statute, explains the president of Currin Compliance Services, LLC, Greenwich, N.Y. “We’re hoping the regulations will rein it in.”
As it stands now, insurers are not sure how to comply, she says. Currin cites the law’s “extra-territorial” focus as an example. This appears in the law’s prohibition of sex-based distinctions for an annuity “covering residents of the commonwealth which is issued or delivered within or without the commonwealth…”
It is clear that the law applies to Massachusetts residents wherever they buy their annuities, she says. But the phrase “issued or delivered” is not clear, she continues. “Most insurance law uses the phrase ‘issued for delivery,’ not ‘issued or delivered.’ Perhaps ‘issued for delivery’ is what the legislators meant, but it’s unclear what they were looking to address.”
Interpretation becomes murkier when considering annuities issued to Massachusetts residents who, say, winter in and buy annuities in Florida, she says. “What if those snowbirds buy annuities in Florida from insurers that do not do business in Massachusetts?” Currin asks. “Right now, it appears such insurers would need to offer those residents a Massachusetts-compliant policy, even if the policy is issued and delivered in Florida.”
Pfeifer raises another question. It is not clear “whether the rule applies to settlement options on post-January 1, 2009 life insurance contracts, supplementary contracts associated with contracts issued before 2009, or to any gender-distinct charges and benefits (other than annuitization rates) on annuities, which are relatively rare today.”
Pfeifer also sees the Act’s specific application to Massachusetts residents wherever they buy annuities as a complicating factor.
“Massachusetts carriers will need to be able to issue gender-neutral annuities in all states they sell in by January 1, 2009,” he explains. And “since most carriers would be expected to respond to the Act with gender-blended payout rates, it less likely that a male annuitant who is a Massachusetts resident would cross state lines to buy a more competitive payout annuity.”
The Massachusetts action raises the issue of equitable treatment of men and women, points out Kim O’Brien, executive director of National Association for Fixed Annuities, Milwaukee, Wis.
“Millions of businesswomen like me are the beneficiaries of laws and policies requiring equitable treatment in the workplace,” she allows.
But men and women are different, she continues, citing for example that women statistically live longer. This creates differences in insurable risk, she says. Insurers therefore need the flexibility to underwrite policies for men and women differently.
“This is one area where different treatment for insuring men and women is the fairest approach,” O’Brien maintains.
Attempting to legislate economic equality where it doesn’t exist, because of the innate differences in mortality and lifespan between men and women, especially while limiting the law just to annuities and not life insurance, introduces “significant economic inefficiencies,” she contends.
Cross-subsidies always do that, she adds, and it results in “overall loss to the common good.”
Passed by the legislature on July 24, 2008, the Act Relative To Equitable Coverage For Annuity Policies was signed by Massachusetts Governor Deval Patrick on July 31, 2008 (Chapter 229 of the Acts of 2008).
The legislation had been proposed in Massachusetts on and off since 1985, says Mike Bartholomew, chief counsel-state relations for American Council of Life Insurers, Washington, D.C. The impetus was the Equal Rights Amendment, he says. The previous efforts to enact did fail, he notes, but in 2008 the Massachusetts Senate passed it unanimously and the House gave it a 30-vote plurality.
“The ACLI unequivocally opposed it,” Bartholomew says, and the annuity industry supplied legislators with “reams” of data about life expectancies and related matters. When it went to the Gov. Patrick for signing, he adds, Massachusetts Insurance Commissioner Burnes wrote a letter asking the governor to return the bill to the legislature due to a number of problems.
But the governor signed it anyway, Bartholomew says. “It was a civil rights issue. They (the legislators and governor) felt they needed to do it.”
Massachusetts is the 2nd state to enact a gender-neutral insurance law. The 1st state was Montana, which passed its Montana Non-Gender Insurance Law in 1983 and implemented it on October 1, 1985. Several attempts to repeal that law have been made, but all have failed. The Montana law applies to all lines of insurance, not just annuities.
In Massachusetts, no one is talking about seeking repeal, says Bartholomew. The focus now is on to trying to work out problems so the companies can be in compliance, he says. Then, if problems remain, there could be efforts to seek corrections in next year’s legislative session.
Currin, the compliance expert, believes some insurers will stop selling annuities in Massachusetts. “It will be too expensive for the smaller companies to develop properly priced annuity products exclusively for Massachusetts,” she explains.
But Bartholomew doesn’t foresee a mass exodus. “Massachusetts is a big insurance state for most of our (ACLI) members,” he explains, “so I think they will look for ways to get positive answers from the commissioner … and take care of any problems later on.”