According to a study by the Insurance Compliance Solutions group at Wolters Kluwer Financial Services, 2009 was the biggest year in recent history for insurance-related regulatory reform. More than 11,000 pieces of legislation were introduced this year that could potentially impact the insurance industry, which marks an 80 percent increase from 2008 and a 60 percent increase from 2007.
The Agent’s Sales Journal has gathered a list of some of the most important pieces of legislation for those in the life and health insurance industry.
#1: The Troubled Asset Relief Program (TARP)
In April 2009, the Treasury Department decided to allow life insurance companies to apply for bailout money from the Troubled Asset Relief Program (TARP). In order to qualify for the funds, an insurer had to own a federally chartered bank. Although several companies, including Prudential Financial, Lincoln National, and Hartford Financial, did own such banks and had applied for TARP funds in 2008, the government did not give them any funds at that time, instead focusing on other industries.
After the initial announcement, the shares of several life insurance companies rose broadly. This trend indicated that TARP funds would stabilize the life insurance industry, which had suffered severe losses over the past year.
Though 12 companies initially applied for aid, just two — Hartford and Lincoln National — ultimately decided to accept the money. Some companies were not eligible to receive the funds, and others decided against accepting the aid.
#2: An Optional Federal Charter for Insurers
The United States insurance industry has historically been regulated by the states. But some in the industry see the state system as overly complex, anti-competition, and excessively burdensome. They say that it increases the cost of compliance and delays the launching of new products. Others see the continuation of state regulation, with its system of state guaranty funds, as the best way to protect consumers when companies face insolvency.
One proposal for reform involves the creation of an optional federal charter. Such a joint federal-state system — similar to the banking industry’s dual regulatory mechanisms in that it would allow companies to choose between the state system and the federal option — would have 51 sets of different regulations and a national regulatory structure. Among those supporting an optional federal charter are a few large insurers that sell coverage to major corporations, reinsurers, brokerage firms, life insurers, and banks that are moving into the insurance business. Those opposed include smaller insurers and state insurance regulators.
#3: States Crack Down on Annuities
In response to increased scrutiny of annuities by the popular media (especially Dateline NBC), many states have begun taking a second look at the protections they have in place for seniors with annuities.
In New Jersey, the Predatory Annuities Prevention Act, which was unanimously passed in September 2008, went into effect on April 1, 2009. The act is designed to help protect consumers through three major provisions: First, annuity salespeople without the proper credentials will not be able to claim that they have senior financial expertise on their marketing materials. Second, annuity agents will be required to fill out disclosure and suitability forms to clearly lay out the terms and agreements of a customer’s investment.
Finally, the act gives consumers a 10-day right-to-cancel period, during which an annuity can be cancelled without any financial penalty.
In Florida, where 26 percent of the population will be age 65 or older by the year 2030, the state Senate unanimously passed the Safeguard Our Seniors Act. This bill limits to five years the surrender-charge period for annuities sold to consumers ages 65 and older. Additionally, it extends to 60 days the free-look period for seniors buying annuities, up from 14 days; during this time, consumers can terminate their contract without penalty. However, because the Florida House has yet to hear the bill, it may not become effective in 2009.
And that’s just two states; several others are making changes to their laws, as well. Be sure to stay in touch with your state insurance commissioner’s office for any legislative updates that may affect your practice.
Reps. Judy Biggert and Paul E. Kanjorski
#4: Federal Insurance Office
Since May 2009, a great deal of effort has been put into bills designed to create a Federal Insurance Office (FIO), but those efforts have only recently earned support from state insurance regulators.
State insurance commissioners said the recent amendments to the Federal Insurance Office Act (H.R. 2609) uphold important safeguards to ensure that state regulation continues to protect insurance consumers and companies.
According to the NAIC Web site, recent changes to the bill include:
- Close coordination between the states and the FIO on narrow international agreements
- Ensuring that international agreements do not pre-empt state prudential regulation of U.S. insurers
- Limiting the scope of agreements to recognize a level of supervision consistent with state protections
- Enhanced congressional involvement and consultation, as well as improved judicial review on pre-emptive determinations
- A clear retention of state authority over the business of insurance
The original bill was introduced by Reps. Paul E. Kanjorski and Judy Biggert in order to establish what would be an FIO in the Treasury Department. The office would be charged with the collection of insurance data to advise the U.S. Treasury Department on domestic and international policy issues, report to Congress every two years, and create federal policies related to international insurance issues.
#5: Senior Designation Laws
Continuing the trend from 2008, several more states adopted the standards set forth by the National Association of Insurance Commissioners (NAIC) regarding the use of senior-specific certifications and professional designations in the sale of life insurance and annuities.
According to the NAIC, individuals selling insurance products to seniors often boast designations and credentials that use terms such as “certified,” “accredited,” “retirement planner,” “senior advisor,” or “senior consultant.” The NAIC model regulation prohibits the use of such terminology in advising or servicing seniors in the purchase of life insurance and annuities. According to the new state laws, producers who misrepresent their level of expertise in marketing and sales activities will be subject to penalties, as will insurers that allow their producers to use misleading designations.
The states that enacted the senior designation law in 2009 include — but are not limited to — Delaware, Utah, Minnesota, Arkansas, and Missouri. Check with your state insurance commissioner’s office for your state’s rules on senior designations.
A federal bill, known as the Senior Investment Protection Act of 2009, was read in the Senate in April 2009 and referred to a committee for further action.
#6: Changes in Mandated Benefits
Every year, states re-evaluate their mandated benefits, but 2009 was one of the biggest years for change. There was an expansion of existing benefits to other states, and newer benefits, such as telemedicine, were enacted.
In addition, amendments to the Mental Health Parity Act went into effect in October 2009, expanding parity to the treatment of substance abuse and increasing the definition of parity to include financial requirements and treatment limitations. Under the amendments, group health plans that offer mental health and substance abuse treatment benefits must ensure parity with regards to annual and lifetime benefit limitations, as well as cost sharing, including copayments and co-insurance. Smaller-sized employers are exempt from these requirements.
Mandated benefits are given by each state, so check the rules in the states in which you are licensed in to see what kind of mandates are in place.
#7: Medicare Supplements and GINA
The Genetic Information Nondiscrimination Act of 2008 (GINA) was enacted on May 21, 2008 and prohibits any denial, conditioning, or discrimination in the pricing of a Medicare supplement policy on the basis of genetic information. GINA also limits the ability of Medicare supplement providers to request or require genetic testing, and prohibits the collection of genetic information for underwriting or other purposes prior to enrollment.
According to a presentation by the NAIC, the Centers of Medicare and Medicaid Services asked the NAIC to create a model regulation for the states to follow. The effective date for GINA requirements was May 21, 2009 (one year from the date of enactment). However, GINA gave states until July 1, 2009 to make regulatory or statutory changes.
Failure to adopt the changes to the NAIC Medicare supplement model in the time frames contained in the federal law could result in a state being pre-empted from regulating Medicare supplement business.
Notice some important regulation missing from this list? ASJ saved the top five for its January 2010 print edition. Get your free subscription today, or come back in January to see what the experts have to say about the biggest regulatory actions of 2009.
Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at [email protected] or 800-933-9449 ext. 225.