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Regulation and Compliance > State Regulation

2013 legislative activity: The early review

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From the insurance industry perspective, the first quarter of every year delivers substantial numbers of introduced bills to be reviewed for applicability to annuities. From unfair trade practices to suitability to replacement and more, the life insurance industry has much to monitor.

Some of the new and revised requirements are familiar adoptions of model laws, which should technically allow for eventual easier implementation by insurers. Other recent developments and proposed changes may ultimately require claims and underwriting system modifications, while some may mercifully ease speed-to-market in certain states.

Currently, Florida is one of a few states without the comprehensive annuity suitability provisions addressed in the National Association of Insurance Commissioners’ (NAIC) Suitability in Annuity Transactions Model Regulation (Model 275). The suitability requirements in that state are limited to sales of annuities to seniors. That may all change with the enactment of SB 166 this session (note that HB 167 contains similar proposals). The bill would require that recommendations relating to annuities made by an insurer or its agents apply to all consumers. Additional proposed revisions include requirements for a system for insurers regarding the supervision of recommendations, record retention and reporting. Consumer disclosures, as well as undertaking reasonable efforts to obtain the consumer’s suitability information, are also addressed.

Florida’s SB 166 also proposes a revision requiring additional disclosures in annuity sales. Regarding the current attached cover page for an annuity transaction, the pending bill would require that it must also contain the following information in bold print and at least 12-point type, if applicable:

  • “Please be aware that the purchase of an annuity contract is a long-term commitment and may restrict access to your funds.”
  • “It is important that you understand how the bonus feature of your contract works. Please refer to your policy for further details.”
  • “Interest rates may have certain limitations. Please refer to your policy for further details.”
  • “A [prospectus and policy summary] [buyers guide] is required to be given to you.”

Unclaimed property

Given all the embedded requirements associated with unclaimed property due diligence, reporting and remittance, it was a forgone conclusion that life insurers would face the certainty of continued legislative and regulatory interest in unclaimed property. So far, this has been the case with unclaimed property initiatives continuing to surface in legislatures.

States with pending bills this year include Massachusetts (HB 20), Montana (SB 34), New Mexico (SB 312), North Dakota (HB 1171), Rhode Island (HB 5452) and Vermont (HB 95). These bills include provisions providing for revisions to insurers’ claims processes similar to what the industry saw last year with changes adopted in Alabama, Kentucky, Maryland and New York.

Also on four states’ legislative agendas this year are introduced bills seeking to join the Interstate Insurance Product Regulation Compact (IIPRC). The states with these pending proposals are Connecticut (SB 35), Florida HB 383 and SB 242), Montana’s SB 28 and New York’s (SB 2895 and AB 1983.) Assuming one or more of these bills are enacted, life insurers would be able to take advantage of some of the efficiencies the IIPRC affords in terms of standards, filings and state approvals.

Apart from the pending changes, life insurers are sure to be implementing Michigan’s actual upcoming changes in annuity suitability requirements that are effective on June 1. Similar to the requirements previously adopted in many states consistent with Model 275, these new statutory sections require insurers to establish and maintain specific internal compliance and training procedures.

A late spring effective date is also applicable for New York’s AB 9845, which becomes effective June 15, 2013. This bill enacted a new section in the insurance code that requires insurers to perform a comparison of life insurance policies against the federal death master file to identify potential matches of its insureds or account holders and to complete a good faith effort to confirm the death of the insured and locate beneficiaries. It also established standards for cross-checking policies, multiple policy search procedures, and standards for locating claimants. This, in effect, codifies many of the requirements established in Regulation 200, which became effective last year on June 14. While the primary focus is on the claims aspect of unclaimed property, this recent enactment also “borrows” the underwriting focus from Regulation 200 in its requirement that life insurers obtain “identifying information” early on in the underwriting process.

While state legislatures have much to contend with in the early months of each year, especially those with short sessions, the departments of insurance, of course, promulgate regulations and issue guidance throughout the year. Insurers issuing annuities might be interested in a fairly recent regulatory development in Wyoming. Effective February 12, this state revised its rules related to sales of replacement life insurance policies and annuities. These changes include an increase in the number of days that the applicant has a right to exercise a request for an unconditional refund of all premiums paid, from 20 days to 30 days, commencing from the date of delivery of the policy. The revised rules also specify that “in the case of a variable or market value adjustment policy or contract, a payment of the cash surrender value provided under the policy or contract plus the fees and other charges deducted from the gross premiums or considerations or imposed under such policy or contract.”

So while it is still early in 2013, the legislative and regulatory activity is a definite continuum with multiple potential and actual impacts on the underwriting and claims processes.

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