New York May Develop Life Policy Disclosure Rules

The National Association of Insurance Commissioners may have set off a race by New York and other states to develop their own life insurance policy disclosure rules.

Members of the NAIC’s Life Insurance and Annuities Committee freed states to create their own disclosure rules last month, by voting at an in-person session in San Diego to kill the committee’s Life Insurance Illustrations Working Group.

What It Means for Agents

If states move forward with their own life policy disclosure efforts, financial professionals with multi-state practices and multi-state clients could have to keep track of life policy disclosure forms and rules for multiple states.

A life insurance agent who had a licenses in California, New York and Texas, and a client with homes in Dallas, Los Angeles and New York, might have to figure out which form, or forms, to give the client, and how, instead of just having to give the client one national form.

A flurry of new state-specific life disclosure forms and rules also could be burdensome for national life insurance web brokers, which often try to sell insurance in all, or nearly all, states.

The History

The NAIC is a Kansas City, Missouri-based group for state insurance regulators. It does not set major laws and regulations directly, but states often start with NAIC “models,” or sample language, when developing their own laws and regulations.

The NAIC’s Life Insurance and Annuities Committee formed the Life Insurance Illustrations Working Group in 2016, in response to requests by regulators, insurers and consumer groups for national standards for documents that could help consumers understand life insurance policies.

In recent years, working group members had focused on creating a short life policy summary as a tool consumers could use to make sense of policy performance illustrations.

The Chair Report

Richard Wicka, a Wisconsin regulator who had chaired the working group, concluded in a review of the working group’s efforts released in the summer, he had no indication that many states saw adopting a policy summary as a priority, and that, to his knowledge, no state had policy summary rules in effect.

Wicka suggested that a top-down approach to policy summary regulation seemed inappropriate, and that states should serve as the laboratories for developing any policy summary standards, according to a copy of his report included in a San Diego meeting document packet.

Life Insurance and Annuities Committee members talked about Wicka’s recommendations in San Diego.

My Chi To, a New York regulator, said “consumers should have clear, concise, accurate and realistic descriptions and illustrations of the complex products they purchase, which is not a controversial position,” according to the draft meeting minutes posted on the Life Insurance and Annuities Committee’s section of the NAIC’s website. She said “there are obviously different ways of achieving that goal, but that New York thinks that a uniform policy overview would have been an important step in the right direction.”

To noted that Wicka had encouraged states to experiment with life policy disclosures and disclosure models.

“She said that New York intends to take up that invitation,” according to the draft meeting minutes.

The Impact

New York is the third largest U.S. state market for life insurance, after California and Texas, according to the American Council of Life Insurers’ 2021 Life Insurers Fact Book. New York accounted for $224 billion of the $3.3 trillion in life insurance death benefits purchased in the United States in 2020.

New York insurance laws are so different from the laws in effect in most other states that many large U.S. life insurers use separate companies to do business in New York, and many small life insurers avoid doing business in New York.

In the past, one of life insurers’ goals was to encourage regulatory uniformity, in part to narrow the gap between New York and other states, or, at least, to reduce the number of states seeking to base their insurance rules on New York’s rules.

Any sign that New York is developing especially strict or detailed life policy disclosure rules could lead the NAIC or another insurance policy organization, the National Council of Insurance Legislators, to create a new national life policy disclosure rule development effort.

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Pictured: Albany, New York (Matt Wade/ALM)