With some of the legislative sessions winding down, now is a good time to assess changes that need to be accounted for in the annuity business. From annuity disclosures to replacement requirements, and a variety of developments in between, legislative activity across the country continues to impact the life insurance industry.
From around the states
Looking first at annuity disclosures updates, the Iowa Insurance Division (IID) provides guidance in its Bulletin 13-01, issued April 3, to life insurers regarding state standards for the disclosure of certain minimum information to consumers considering the purchase of annuity contracts. The IID addresses issues for both insurers and producers concerning the annuity disclosure rules (191 IAC 15.61-15.69), which became effective on April 11, 2012 and applied to certain annuities issued after January 1. The bulletin details and clarifies requirements on multiple topics including:
- Buyer’s Guide
- Content of disclosure documents
- Standards for annuity illustrations
- Use of illustrations
- Delivery requirements
- Tracking of values for each crediting method
- Allocations to more than one account
- Hypothetical generic examples
- Surrender value
- Portrayal of periodic income options
- Use of Internet materials
- Account value vs. index value; and
- Modal premiums
Recent legislative and regulatory developments addressing same sex marriage also present changes for insurers to address. Rhode Island’s Bulletin 2013-2 provides additional information on that state’s same sex marriage statutory provisions that become effective August 1. As current civil unions will no longer be available after that date, the Department of Business Regulation indicates that it plans to amend existing Insurance Regulation 118 on civil unions to reflect the new statutory provisions for same sex marriages. The Department further directs that “all new form filings to be effective on or after August 1, 2013 shall include same sex marriage within the definition of ‘spouse’ or ‘marriage’ in accordance with the law.” Minnesota’s HF 1054 (2013), also effective August 1, amends 517.01 to read: “A civil marriage, so far as its validity in law is concerned, is a civil contract between two persons, to which the consent of the parties, capable in law of contracting, is essential.”
Product filers also witnessed some changes so far this year. These 2013 sessions have produced three additional states joining the Interstate Insurance Product Regulation Compact. Arkansas and Montana enacted bills earlier this year, while the Florida governor signed HB 383 into law on June 7, all with varying effective dates.
Annuities suitability developments based on Model 275 continued to progress across states. Florida, Idaho and Michigan took steps to adopt the multiple Model Law requirements, which include an insurer system of supervision and producer training. Most recently, Florida’s SB 166, signed into law on June 14, amended that state’s existing suitability law by extending and expanding its provisions governing recommendations relating to annuities made by an insurer or its agents to apply to all consumers, not just senior consumers. SB 166 also establishes additional requirements effective October 1. Life insurers, with respect to fixed and variable annuities, will be required to inform such an annuity purchaser of the unconditional refund period that will be required to run for at least 21 days. The insurer is to fulfill this disclosure requirement by attaching a cover page to the annuity contract with this information.
In addition to the unconditional refund disclosure, the cover page must also newly contain the following disclosures 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 money.”
- “It is important that you understand how the bonus feature of your contract works. Please refer to your contract for further details.”
- “The interest rate applied to your contract may be subject to change periodically and may increase or decrease, subject to certain interest rate guarantees described in your contract.”
- “A [prospectus and contract summary] [buyers guide] is required to be given to you.”
Connecticut’s new regulation “Requirements for Replacement of Life Insurance and Annuities” is effective on July 23. Sections 38a-435-1 to 38-435-8, along with three appendices, have a stated purpose to:
- Regulate the activities of insurers and producers with respect to the replacement of existing life insurance and annuities; and
- Protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to be observed in replacement or financed purchase transactions.
In addition to various requirements for insurers set forth in the regulatory sections, the regulation’s three appendices contain the following notices: “Important notice: replacement of life insurance or annuities”; “Notice regarding replacement — replacing your life insurance policy or annuity?”; and “Important notice: replacement of life insurance or annuities.”
These are but a few of the many legislative and regulatory developments from 2013, many of which will require some fairly immediate changes in insurer’s policies and procedures in order to meet the pending effective dates.
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