The middle part of a rectangle moving over to be with some triangles (Credit: Allison Bell/ALM)

A group for state-level lawmakers with an interest in insurance has completed work on a document that could eventually affect what happens when one insurer shifts responsibility for a life insurance policy or annuity contract to another insurer.

Members of the National Council of Insurance Legislators (NCOIL) recently approved the Insurance Business Transfer Model Act.

Resources

  • A copy of the NCOIL Insurance Business Transfer Model Act is available here.
  • An article about restructuring insurers is available here.

State-level officials are in charge of most efforts to regulate the business of insurance in the United States.

State-level lawmakers can choose to base their own bills completely or partly on models from NCOIL or other organizations.

NCOIL’s new model could help insurers pass on or take on blocks of insurance business in a way that moves legal responsibility for the block from one company to another.

The model describes the insurers’ responsibilities and various types of safeguards, such as insurance commissioner review to verify that a transaction appears to protect the interests of the policyholders, and steps to preserve any guaranty fund protection a policyholder might have.

Early on, some NCOIL members and insurance industry representatives wondered whether the model would apply only to property and casualty lines, or whether it might also apply to life and health products.

The final version of the model defines the kind of “policy” subject to the model to be “a policy, annuity contract or certificate of insurance or a contract of reinsurance pursuant to which the insurer agrees to assume an obligation or risk, or both, of the policyholder or to make payments on behalf of, or to, the policyholder or its beneficiaries, and shall include property, casualty, life, health and any other line of insurance the [state insurance] commissioner finds via regulation is suitable for an insurance business transfer.”

NCOIL has included a drafting note stating that, “States may wish to remove certain lines of insurance from the scope of an insurance business transfer.”

The model was sponsored by New York state Assembly Member Andrew Garbarino and Oklahoma state Rep. Lewis Moore.

The sponsors and other supporters have argued that the United Kingdom has had an insurance business transfer mechanism in place for decades, and that the mechanism has worked well.

In the United States, Arizona, Oklahoma, Rhode Island and Vermont already have insurance business transfer legislation in place, according to a slidedeck prepared for an American Council of Life Insurers (ACLI) compliance meeting session held in July 2019.

ACLI session panelists noted that one possible concern is that a strong insurer could pass responsibility for policyholders or annuity contract holders on to a weak carrier, and that another concern is that, if an insurer assuming business was licensed in different states than the insurer that originated the business, some policyholders could end up without clear-cut access to guaranty fund protection.

— Read Business Transfer Model Could Apply to Life, Health and Annuity Businesson ThinkAdvisor.

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