Insurance regulators in New York state are getting ready to implement a new regulation that could affect how life insurers implement some types of premium increases and parameter changes involving in-force life insurance policies and annuities.
New York regulators began working on the regulation in 2008, in part in response to reports about problems with “vanishing premium” life insurance products, or interest-sensitive life insurance policies set up in such a way that the effects of interest earnings on policy cash value were supposed to eliminate the need for the holders to make premium payments. A sharp, prolonged drop in interest rates threw off the original calculations and forced the holders to begin paying premiums to keep policies in force.
The new regulation is set to take effect March 19, 2018. If the regulation takes effect on time, and works as regulators expect, it could end up affecting how insurers make some types of changes in crediting rates and indexed account parameters, as well as how they make changes in life insurance premiums.
The regulation works mainly by requiring the insurers to send new notices to the state Department of Financial Services (DFS), and by setting new standards for notices for consumers.
The department has posted a copy of the new regulation here.
Maria Vullo, New York state’s financial services superintendent, said in a statement about the new regulation that the state DFS hopes the regulation will protect state residents against unfair cost increases.
“With this department, DFS will have the ability to review increases by life insurers and ensure any increases comply with law, and consumers will be provided advance notice of any adverse changes to their premiums,” Vullo says.
Although the regulation would apply on in New York state, it could affect how regulators in other states write and apply their own regulations.
For a look at seven things to know about the regulation, based on a DFS summary of the regulation and a DFS analysis of comments on a draft version of the regulation, read on.
1. The regulation changes state and consumer notice rules.
An insurer making many types of “adverse” premium and parameter changes must note state regulators 120 days before making the change, and it must notify consumers, with a special notice, at least 60 days before making the change.