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Regulation and Compliance > Federal Regulation

FIO Plans Insurance Summit in Advance of Comments on Improving Insurance Regulation

By Elizabeth D. Festa

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A week before comments are due for a request from the Federal Insurance Office (FIO) on the Treasury Department office’s report to Congress on “How to modernize and improve the system of insurance regulation in the United States,” the FIO is hosting a conference on the topic.

The event, to be held Friday, Dec. 9, at the Treasury Department, will feature state insurance regulators, federal government officials, consumer organizations, representatives of the insurance industry, and insurance experts, the department said, in pursuit of “a meaningful exchange on potential areas for insurance regulatory reform.” 

An agenda will be sent out next week detailing the topics. And representatives of the NAIC are expected to be in attendance.

Comments are due Dec. 16th to the FIO on a call for comments before the FIO must send a report to Congress under the statutes required by the 2010 Dodd-Frank Financial Services Regulatory Reform Act.

Major trade groups have not responded yet.

But insurance professor Joseph M. Belth weighed in on a request by the FIO for possible gaps in state regulation. 

Belth, professor emeritus of insurance in the Kelley School of Business at Indiana University, editor of The Insurance Forum and author of Life Insurance: a Consumer’s Handbook, identified several dealings with life insurance product disclosures and financial strength ratings assigned to insurance companies.

For instance, Belth began, life insurance companies should be required to disclose at the point of sale the yearly price of protection (YPT), based on reasonable yearly rate of return assumptions for each policy year beginning with year one and continuing through at least the policyholder’s age 85, Belth wrote to the FIO Nov. 29.

Belth said that “it is vital to disclose the information and thereby give the policyholder a basis for future comparisons with actual results. In addition, a company should be required to disclose annually, as part of a report to the policyholder, the YPT for the most recent policy year and the YPT for the next policy year,” as part of an 11-page letter with attachments on the calculations involved.

”A fractional premium arrangement is not an installment loan because the policyholder has the right to stop paying the fractional premiums anytime,” Belth wrote. “Nonetheless, it is appropriate to disclose the charges as interest rates because a major purpose of the charges is to compensate the company for the policyholder’s use of the company’s money.”

He also told the FIO that an insurance company should be required to disclose both the dollar amount of fractional premium charges per year and the rate—either the annual interest rate or the annual percentage rate.

Fractional (or “modal”) premiums include charges that insurance companies assess when premiums are paid semiannually, quarterly, or monthly. Merely disclosing the dollar amount alone “is not adequate and may be deceptive.

“The disclosures should be made at the point of sale to help the policyholder decide on the appropriate premium payment frequency,” Belth stated. “The disclosures also should be made at least annually after the sale to help the policyholder decide whether to change the premium payment frequency.

“The insurance industry opposes the disclosures identified in this statement,” he added. “The stated reasons for the opposition are that the disclosures would confuse consumers, and that consumers have not demanded the disclosures.”

Belth stated that these reasons are not valid and that insurers are scared of competition in the market.

“The failure to make the disclosures deprives consumers of vital information,” he concluded. “I urge you to give careful consideration to these serious gaps in state insurance regulation.”

The life insurance industry trade group, the ACLI, had no comment.

The Independent Insurance Agents & Brokers of New York (IIABNY) has also submitted a Nov. 22 letter, telling FIO Director Michael McRaith that “Federal regulation of the insurance industry would lead to duplicative oversight and inefficiencies in the market, resulting in a negative impact on consumers,” except in certain targeted areas such as the enactment of producer licensing reform and non-resident licensing legislation in Congress that would preserve “the rights of the states to supervise and discipline agents and brokers.”