Efforts to finalize an annuity disclosure model regulation are focusing on how to balance the need for oversight of illustrations for non-guaranteed elements in annuity products with insurers’ desire to make keep the annuity market healthy at a time when a swell of baby boomers may need regular income.
The discussion over the Annuity Disclosure Model Regulation is part of an effort to wrap up the effort at the National Association of Insurance Commissioners, Kansas City, Mo., and advance it toward final adoption. Connecticut Commissioner Tom Sullivan, chair of the NAIC’s Life & Annuities “A” Committee has made it clear that he wants the Annuity Disclosure working group to advance the draft to the “A” Committee by the NAIC fall meeting in Orlando next month.
As part of that effort, Jim Mumford, the working group chair and first deputy commissioner with the Iowa insurance department, has set up a series of conference calls to finish work within the month. The discussion on Sept. 3 included an explanation by Mumford of when annuity companies would be allowed a safe harbor from disclosure requirements. Companies which have variable annuities that are in compliance with the Securities and Exchange Commission or Financial Industry Regulatory Authority rules would satisfy the regulations requirements, Mumford explained. If the SEC has not developed a summary prospectus for variable annuities before Jan. 1, 2013, companies would be required to comply with Section 5 of the regulation after that date.
A Buyers Guide would have to be provided for variable annuities, similar to current requirements for fixed annuities. If an illustration is provided, it would have to be used for all sales made on that particular product.
The safe harbor was developed because of concern among VA writers that there would not be sufficient time to prepare for new requirements, according to Mumford.
Lee Covington, senior vice president and general counsel with the Insured Retirement Institute, Washington, emphasized the importance of guaranteeing income and the priority the Obama administration and Congress is giving the issue. “We are trying to reduce the barriers to annuities and 401(k)s. We want good regulation but not something that will restrict the product.”
Feedback from distributors, according to Covington, suggests that illustrations should not be mandatory for all contracts in a policy form. A mandatory illustration requirement would be cumbersome to consumers and advisors, he added.
Variable annuities are already regulated and if there is a not in good order (NIGO) designation because of illustration requirements then distributors’ reps are less likely to recommend them, Covington added.
Wire house stock brokers want to drop a ticket on the same day and if they have to wait three days until disclosures are provided, they are not going to do that, he added. Some companies will choose not to use illustrations, he continued. That would deny advisors and consumers who find them useful, the right to use them, according to Covington.
Ron Panneton, senior counsel-state and government relations with the National Association of Insurance and Financial Advisors, Falls Church, Va., said that the purpose for illustrations it to help customers and flexibility on their use is needed to avoid a situation that could be “disruptive and confusing to the sales process.”
Mumford responded that the requirement that an illustration be used for all contracts in a particular policy form was to stop the use of an illustration only when it was good for the seller and not the buyer. “I have a tough time allowing producers to produce one when they want and not produce one when they don’t want to.”
Eric Dupont, assistant vice president and government relations counsel with MetLife, New York, said that illustration software is developed by Met Life and its producers can only use that software which is compliant in all states. But the discussion turned to third party software and how regulators needed to address that issue.
There is not a mandatory illustration rule for securities and to require one for annuities is setting up an uncompetitive situation, according to Kim O’Brien, executive director of the National Association of Fixed Annuities, Milwaukee. If an advisor wants to make a comparison of two contracts, it takes away that evaluation process from the advisor if a company decides not to illustrate for any annuity rather than to meet the requirement to illustrate for all annuities of a particular policy form, she added.
Utah regulator and actuary Tomasz Serbinowski, asked about products that are not officially designated to be illustrated and what actually constitutes an illustration. “Do we have a clear rule about what it means to be illustrated?” Regulators need to “figure out what it is that bothers us if an annuity illustration is shown to consumers,” Serbinowski said.
Saturday, September 4, 2010
Wednesday, September 1, 2010
First, the Good News
It’s that time of year again. Every September the life insurance industry celebrates Life Insurance Awareness Month.
This year LIAM starts off with some mixed news. The good news is that for the second consecutive quarter, individual life insurance sales improved. In the second quarter 2010, total individual life insurance new annualized premium grew seven percent, resulting in a nine percent increase for the first six months of 2010, according to LIMRA's U.S. Individual Life Insurance Sales survey.
The not so good news is that the economic downturn has contributed to ownership of individual life insurance falling to a 50-year low, LIMRA, Windsor, Conn., adds.
The Trends in Life Insurance Ownership study, conducted every six years by LIMRA, found that only 44 percent of U.S. households have individual life insurance. The number of U.S. households that have no life insurance whatsoever is growing. Today, 30 percent of households (35 million) have no life insurance coverage, compared to 22 percent of households in 2004. Among households with children under age 18, which arguably have the greatest need for life insurance, 11 million have no coverage.
LIMRA says that more than 40 percent of Americans say a major reason they have not bought more life insurance is because they have other financial priorities right now, such as paying off debt or saving for retirement. However, it adds, the drop in life insurance ownership is not because families are not feeling vulnerable. Among households with children under 18, four in 10 say they would have immediate trouble meeting everyday living expenses if the primary breadwinner died today. Another three in 10 would have trouble keeping up with expenses after several months, according to LIMRA. Half of households feel they need more life insurance — the highest level ever.
But there is some more good news to supplement the second quarter results. The LIMRA study does find that 24 percent of households with children under 18 want to speak with a financial professional about their life insurance needs; and a quarter of all households plan to buy life insurance in the next year.
The first step that needs to be taken is to teach consumers about the value of life insurance. The point was driven home when a handyman who was doing some work for me asked what would be a wise way to save for his family. He had a young wife, a toddler and another one that was about to be born. His wife was pressing him to buy life insurance. I told him she was right. It wasn’t the answer he wanted. The job got done but I’m pretty sure the insurance policy didn’t get written.
The second step is to help people to learn how to buy contracts as Robert Kerzner, CLU, ChFC, president and CEO of LIMRA, LOMA, and LL Global, points out when he says that "as an industry, we need to reach out to consumers and educate them about the various ways they can purchase life insurance."
And, the third step is to make people comfortable with life insurance which means providing information when there are flare ups such as the current retained asset account issue. The industry has to provide information as it did during a recent public hearing at the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo. And, it has to stand ready to offer better disclosure or any other remedy available if regulators determine that better safeguards are needed. Or to work with state insurance legislators including state Rep. Robert Damron, D-Nicholasville, Ky., to help create a Beneficiaries' Bill of Rights, if that will bring more comfort to the consumer. Damron introduced the model as a response of the National Conference of Insurance Legislators, Troy, N.Y.
This year LIAM starts off with some mixed news. The good news is that for the second consecutive quarter, individual life insurance sales improved. In the second quarter 2010, total individual life insurance new annualized premium grew seven percent, resulting in a nine percent increase for the first six months of 2010, according to LIMRA's U.S. Individual Life Insurance Sales survey.
The not so good news is that the economic downturn has contributed to ownership of individual life insurance falling to a 50-year low, LIMRA, Windsor, Conn., adds.
The Trends in Life Insurance Ownership study, conducted every six years by LIMRA, found that only 44 percent of U.S. households have individual life insurance. The number of U.S. households that have no life insurance whatsoever is growing. Today, 30 percent of households (35 million) have no life insurance coverage, compared to 22 percent of households in 2004. Among households with children under age 18, which arguably have the greatest need for life insurance, 11 million have no coverage.
LIMRA says that more than 40 percent of Americans say a major reason they have not bought more life insurance is because they have other financial priorities right now, such as paying off debt or saving for retirement. However, it adds, the drop in life insurance ownership is not because families are not feeling vulnerable. Among households with children under 18, four in 10 say they would have immediate trouble meeting everyday living expenses if the primary breadwinner died today. Another three in 10 would have trouble keeping up with expenses after several months, according to LIMRA. Half of households feel they need more life insurance — the highest level ever.
But there is some more good news to supplement the second quarter results. The LIMRA study does find that 24 percent of households with children under 18 want to speak with a financial professional about their life insurance needs; and a quarter of all households plan to buy life insurance in the next year.
The first step that needs to be taken is to teach consumers about the value of life insurance. The point was driven home when a handyman who was doing some work for me asked what would be a wise way to save for his family. He had a young wife, a toddler and another one that was about to be born. His wife was pressing him to buy life insurance. I told him she was right. It wasn’t the answer he wanted. The job got done but I’m pretty sure the insurance policy didn’t get written.
The second step is to help people to learn how to buy contracts as Robert Kerzner, CLU, ChFC, president and CEO of LIMRA, LOMA, and LL Global, points out when he says that "as an industry, we need to reach out to consumers and educate them about the various ways they can purchase life insurance."
And, the third step is to make people comfortable with life insurance which means providing information when there are flare ups such as the current retained asset account issue. The industry has to provide information as it did during a recent public hearing at the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo. And, it has to stand ready to offer better disclosure or any other remedy available if regulators determine that better safeguards are needed. Or to work with state insurance legislators including state Rep. Robert Damron, D-Nicholasville, Ky., to help create a Beneficiaries' Bill of Rights, if that will bring more comfort to the consumer. Damron introduced the model as a response of the National Conference of Insurance Legislators, Troy, N.Y.
Saturday, August 28, 2010
NCOIL Seeking Comment on Beneficiaries’ Rights and Life Disclosure Models
State insurance legislators recently announced two consumer initiatives that they are working on to ensure that policyholders are treated fairly and have the proper information needed to make decisions.
State Rep. Robert Damron, D-Nicholasville, Ky., and president of the National Conference of Insurance Legislators, Troy, N.Y., is advancing a Beneficiaries’ Bill of Rights, which it recently exposed at the summer meeting of the National Association of Insurance Commissioners in Seattle.
The purpose of the Bill is to “require complete and proper disclosure, transparency, and accountability relating to retained asset accounts for life insurance death benefits and that beneficiaries are fully informed—in bold type and in layman’s language—of their options.”
Among the proposed requirements is a beneficiary’s written consent before payment was transferred into a Retained Asset Account and a prohibition against RAAs being a default method of payment.
The draft bill also requires insurers to report to state insurance departments “the number of beneficiaries with retained asset accounts in place, the total funds held in such accounts, a description of how the funds are invested, a listing of any retained asset account service fees charged by the insurer and the funds necessary to cover liabilities under those accounts on their annual statement required by the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners.”
An insurer would also have to disclose information to RAA holders including:
--Any interest being paid under the options and how it is calculated;
--Whether the retained asset account is the equivalent of a checking or draft account;
--Any time delays the beneficiary should expect to encounter in completing any authorized transaction under a retained asset account and the anticipated amount of such time delay;
--That interest earned on the account may be taxable and the beneficiary should consult his or her
tax advisor.
Comments are due by Sept. 1.
Separately, state Rep. Ron Crimm, R-Lousville, Ky., is seeking comment by Sept. 8, on a proposed Life Insurance Disclosure Model Act.
The NCOIL Life Insurance & Financial Planning Committee will hold a conference call on the Beneficiaries’ Bill of Rights in early September to review any comments in order to have a final measure ready for consideration at the November 18 through 21 Annual Meeting in Austin, Texas. It will hold a call on the Life Disclosure model in mid-September and address it further at the annual meeting.
The draft model would require insurers to send a notice developed by the state insurance commissioner informing policy owners of “alternatives to the lapse or surrender of a policy and of the policy owner’s rights as an owner of a policy related to the disposition of a policy.”
The notice would be developed at no cost to insurers.
Alternatives would include:
(a) accelerated death benefits available under the policy or as a rider to the policy;
(b) the assignment of the policy as a gift;
(c) the sale of the policy pursuant to a life settlement contract, including that a life settlement is a
regulated transaction in this state;
(d) the replacement of the policy pursuant to [cite any regulation governing policy replacement];
(e) the maintenance of the policy pursuant to the terms of the policy or a rider to the policy, or
through life settlement contract;
(f) the maintenance of the policy through loans issued by an insurer or a third party, using the
policy or the cash surrender value of the policy as collateral for the loan;
(g) conversion of the policy from a term policy to a permanent policy; and
(h) conversion of the policy in o rder to obtain long-term care health insurance coverage or a
long-term care benefit plan.
State Rep. Robert Damron, D-Nicholasville, Ky., and president of the National Conference of Insurance Legislators, Troy, N.Y., is advancing a Beneficiaries’ Bill of Rights, which it recently exposed at the summer meeting of the National Association of Insurance Commissioners in Seattle.
The purpose of the Bill is to “require complete and proper disclosure, transparency, and accountability relating to retained asset accounts for life insurance death benefits and that beneficiaries are fully informed—in bold type and in layman’s language—of their options.”
Among the proposed requirements is a beneficiary’s written consent before payment was transferred into a Retained Asset Account and a prohibition against RAAs being a default method of payment.
The draft bill also requires insurers to report to state insurance departments “the number of beneficiaries with retained asset accounts in place, the total funds held in such accounts, a description of how the funds are invested, a listing of any retained asset account service fees charged by the insurer and the funds necessary to cover liabilities under those accounts on their annual statement required by the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners.”
An insurer would also have to disclose information to RAA holders including:
--Any interest being paid under the options and how it is calculated;
--Whether the retained asset account is the equivalent of a checking or draft account;
--Any time delays the beneficiary should expect to encounter in completing any authorized transaction under a retained asset account and the anticipated amount of such time delay;
--That interest earned on the account may be taxable and the beneficiary should consult his or her
tax advisor.
Comments are due by Sept. 1.
Separately, state Rep. Ron Crimm, R-Lousville, Ky., is seeking comment by Sept. 8, on a proposed Life Insurance Disclosure Model Act.
The NCOIL Life Insurance & Financial Planning Committee will hold a conference call on the Beneficiaries’ Bill of Rights in early September to review any comments in order to have a final measure ready for consideration at the November 18 through 21 Annual Meeting in Austin, Texas. It will hold a call on the Life Disclosure model in mid-September and address it further at the annual meeting.
The draft model would require insurers to send a notice developed by the state insurance commissioner informing policy owners of “alternatives to the lapse or surrender of a policy and of the policy owner’s rights as an owner of a policy related to the disposition of a policy.”
The notice would be developed at no cost to insurers.
Alternatives would include:
(a) accelerated death benefits available under the policy or as a rider to the policy;
(b) the assignment of the policy as a gift;
(c) the sale of the policy pursuant to a life settlement contract, including that a life settlement is a
regulated transaction in this state;
(d) the replacement of the policy pursuant to [cite any regulation governing policy replacement];
(e) the maintenance of the policy pursuant to the terms of the policy or a rider to the policy, or
through life settlement contract;
(f) the maintenance of the policy through loans issued by an insurer or a third party, using the
policy or the cash surrender value of the policy as collateral for the loan;
(g) conversion of the policy from a term policy to a permanent policy; and
(h) conversion of the policy in o rder to obtain long-term care health insurance coverage or a
long-term care benefit plan.
Wednesday, August 25, 2010
Global, But Not Seamless—Just Yet
International insurance regulators tasked with building a seamless global solvency system acknowledge that the recent financial crisis is a reminder of the need to be vigilant even though they may be approaching the solution in different ways.
The recent forum sponsored by the American Insurance Association, Washington, during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo., included panelists: Dave Snyder, AIA vice president and associate general counsel; Yoshihiro Kawai, secretary general of the International Association of Insurance Supervisors (IAIS); George Brady, NAIC international counsel; and Hannah Grant, policy advisor for international affairs and reinsurance with the European Insurance and Reinsurance Federation (CEA). The panel which drew approximately 100 attendees was moderated by Erik Holm of Dow Jones Newswires.
Comments suggested that while the goals are largely the same, the approaches may take more discussion to bring them together.
AIA’s Snyder started by noting that the recent global financial crisis was banking and not an insurance problem. It is imperative that any standards developed for insurers be tailored to the insurance industry and reflect the needs of that business. He added that he did not think that insurers pose a systemic risk. Snyder also cautioned against duplicative regulation.
The NAIC’s Brady said a “fundamental first step was to make sure that there is proper coordination and cooperation.” Brady also noted that “solutions are coming from the banking side” and the NAIC and others in the insurance sector need to put out information about how the insurance market works, what the challenges are that it has faced and what options there are to address any challenges. The more we do this, the less likely we are to have banking solutions,” he added.
“We need to focus on what learned in crisis,” said the IAIS’ Kawai. He noted that there are financial conglomerate that include insurance as well as other entities and that it is important to make sure that the conglomerates work well.
Kawai added that high-level IAIS standards exist but there needs to be better communication with more concrete discussion and clearer supervisory language.
The CEA’s Grant said that there is “quite an opportunity right now” to start a dialogue while creating a new structure to better monitor companies operating across borders and to ensure that companies are operating in the same way.
The AIA’s Snyder said that a Federal Insurance Office is important because the “U.S. needs strong voice tech proficient but also one that is capable to make decisions.”
Kawai said that the IAIS is evolving so that in five years it will be a much stronger organization with a structure that will better be able to serve members and observers. The organization is scheduled to decide at an October meeting how to achieve this end, he added.
The discussion also centered on why the United States should be part of the first group of countries to be given equivalence by the Committee of European Insurance and Occupational Pensions Supervisors CEIOPS which is part of the Solvency II Directive. Final advice on the first wave is expected at the end of August, according to Grant.
Snyder said that a letter was submitted urging that the U.S. be in the first wave because it meets the principles necessary to be in compliance with equivalence standards even if some work still needs to be done on points such as confidentiality.
Grant said that it benefits both Europe and the U.S. if the U.S. meets equivalence standards because there is a huge flow of insurance business moving between the two world regions.
The recent forum sponsored by the American Insurance Association, Washington, during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo., included panelists: Dave Snyder, AIA vice president and associate general counsel; Yoshihiro Kawai, secretary general of the International Association of Insurance Supervisors (IAIS); George Brady, NAIC international counsel; and Hannah Grant, policy advisor for international affairs and reinsurance with the European Insurance and Reinsurance Federation (CEA). The panel which drew approximately 100 attendees was moderated by Erik Holm of Dow Jones Newswires.
Comments suggested that while the goals are largely the same, the approaches may take more discussion to bring them together.
AIA’s Snyder started by noting that the recent global financial crisis was banking and not an insurance problem. It is imperative that any standards developed for insurers be tailored to the insurance industry and reflect the needs of that business. He added that he did not think that insurers pose a systemic risk. Snyder also cautioned against duplicative regulation.
The NAIC’s Brady said a “fundamental first step was to make sure that there is proper coordination and cooperation.” Brady also noted that “solutions are coming from the banking side” and the NAIC and others in the insurance sector need to put out information about how the insurance market works, what the challenges are that it has faced and what options there are to address any challenges. The more we do this, the less likely we are to have banking solutions,” he added.
“We need to focus on what learned in crisis,” said the IAIS’ Kawai. He noted that there are financial conglomerate that include insurance as well as other entities and that it is important to make sure that the conglomerates work well.
Kawai added that high-level IAIS standards exist but there needs to be better communication with more concrete discussion and clearer supervisory language.
The CEA’s Grant said that there is “quite an opportunity right now” to start a dialogue while creating a new structure to better monitor companies operating across borders and to ensure that companies are operating in the same way.
The AIA’s Snyder said that a Federal Insurance Office is important because the “U.S. needs strong voice tech proficient but also one that is capable to make decisions.”
Kawai said that the IAIS is evolving so that in five years it will be a much stronger organization with a structure that will better be able to serve members and observers. The organization is scheduled to decide at an October meeting how to achieve this end, he added.
The discussion also centered on why the United States should be part of the first group of countries to be given equivalence by the Committee of European Insurance and Occupational Pensions Supervisors CEIOPS which is part of the Solvency II Directive. Final advice on the first wave is expected at the end of August, according to Grant.
Snyder said that a letter was submitted urging that the U.S. be in the first wave because it meets the principles necessary to be in compliance with equivalence standards even if some work still needs to be done on points such as confidentiality.
Grant said that it benefits both Europe and the U.S. if the U.S. meets equivalence standards because there is a huge flow of insurance business moving between the two world regions.
Monday, August 23, 2010
NAIC Summer Meeting Wrap Up
State insurance regulators have so many things going on right now, that it’s hard to keep a score card. But here are a few of the activities in Seattle this past week that are worth mentioning.
Implementing the structure to get the Patient Protection and Affordable Care Act up and running has been a major focus of the National Association of Insurance Commissioners, Kansas City, Mo., for months now. The Accident and Health Working Group, under the direction of Steve Ostlund (ALA), Julia Philips (Minn.) and Rick Diamond (Me.) are more than two-thirds of the way through the issue resolution documents between regulators and industry.
The NAIC also overwhelmingly approved a medical loss ratio blanks proposal that will allow insurers to report financial information to regulators to calculate medical loss ratios and any rebate required under the new federal law.
Additionally, regulators are starting work on the development of an NAIC model law on health exchanges that will give guidance to states as they begin to implement the legislation in 2011.
News was also delivered by Joel Ario for the Health Insurance and Managed Care “B” Committee that 45 states and the District of Columbia have had their grant requests for the creation of exchanges approved. Ario also announced that he is leaving his position as Pennsylvania insurance commissioner to take a position with Health and Human Services.
While the NAIC is working on PPACA issues, it is also focused on solvency modernization and international developments that weave solvency efforts into a global regulatory blanket. During the summer meeting a Solvency Modernization Initiative Roadmap was released by the NAIC’s Solvency Modernization Initiative Task Force. The document is a snapshot of the NAIC work to date.
The SMI focuses on five key areas:
• Capital requirements;
• Governance and risk management;
• Group supervision;
• Statutory accounting and financial reporting; and
• Reinsurance.
Statutory accounting is an area of concern for many insurers including PCI members, according to the PCI’s Jim Olsen. Insurers will be watching the process as regulators discuss the issue at the fall meeting and at a scheduled public hearing in December in preparation for a tentative decision in March 2011. Statutory accounting and equivalence issues are critical to U.S. insurers, Olsen explained.
The Antifraud Task Force and ERISA Subgroup met jointly for a public hearing on Limited Medical Benefit Plans, concentrating on the sales and marketing of the products to consumers and employers. The hearing was precipitated by a growing number of instances where health plans sold were misrepresented as comprehensive coverage, and consumers were left without medical insurance and often with significant debt. The NAIC heard testimony from representatives of the insurance industry and consumer groups. Regulators stressed the importance of clarifying disclosures at the point of sale that address what the plan specifically covers.
During the Antifraud session, Deirdre Manna of the Property Casualty Insurers Association of America, Des Plaines, Ill., commended the task force for its work including a draft model that includes strong confidentiality language but requested the removal of wording requiring specific number of hours of producer training be removed. "Insurers have many incentives to recruit, hire and train qualified personnel," she explained.
The NAIC plans to look further into how these plans may be affected by the PPACA laws and what regulators can do to address the current rise of scams related to these health care plans.
During the meeting, the Interstate Insurance Product Regulation Commission, an affiliate of the NAIC based in Washington, adopted individual long-term care uniform standards during a joint meeting of the Management Committee and Commission. The NAIC says that the standards include “strong readability requirements, consumer-friendly benefit trigger requirements and prohibition of mental health and nervous disorder exclusions." Prior to its passage Texas offered a proposal to establish stronger consumer protections.
The individual long-term care uniform standards only apply to new products filed with the IIPRC and will not affect existing long-term care products approved by a state or closed blocks of business. These uniform standards will now undergo a promulgation period and are expected to become available for filing before the end of 2010.
Insurers weighed in on a number of NAIC projects. The PCI’s Dave Kodama expressed concern that climate change questions that are supposed to be part of an aggregate report will now be required for individual companies and raised the issue of confidentiality of industry data.
PCI also weighed in on the NAIC’s decision to develop a model law to regulate insurance scoring modelers. Insurance scores are already heavily regulated by state law, according to Alex Hageli, PCI's director, personal lines policy.
“The decision to proceed with the development of the model is particularly ironic given the NAIC is also proceeding with a data to ostensibly gain more information about the use and impact of credit on insurance. It seems they require more information to study the use of credit by insurers, but nevertheless sure that a model law is needed to regulated scoring vendors,” he added.
However, consumer advocates including Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, have argued for years that the NAIC needs to address the credit scoring issue.
The NAIC's Producer Licensing Task Force met and discussed an industry proposal to streamline business entity licensing, but did not formally adopt standards, according to David Eppstein, representing PIA National. Task Force chair Linda Hall (AK) characterized the proposal as an excellent basis for discussion but wanted to give the regulators more time to review the proposed standards with their department staff.
The proposal removes the requirement for a business entity to register as a foreign corporation as a condition of obtaining or maintaining a nonresident license. The proposal is also supported by the American Insurance Association, Council of Agents and Brokers, Independent Insurance Agents and Brokers of America and the PIA National and PCI.
PIA National is working closely with other producer and carrier representatives to develop the uniform standards and we are confident that the NAIC will adopt them soon, according to Eppstein. It is possible that the standards could be adopted by the NAIC in October, he added. Once passed, Eppstein said that PIA will work to make sure that they are implemented nationwide either through regulation or legislation.
Life Actuaries at the Life & Health Actuarial Task Force also received an update from the Oliver Wyman actuarial team of Jeffrey Hancock, Amal Rajwani, and Ramy Tadros on the unintended consequences of C3 Phase II based on data from 12 of the largest variable annuity writers in the U.S. Using hedge assets as opposed to just cash assets can create unintended volatility on the balance sheet, the team told regulators. Among the potential action items that regulators could take, according to the team would be to simplify the balance sheet calculation and introducing a cap on Actuarial Guideline 43 as well as exploring peer review to ensure standards compliance. However, the team said that the updated paper, which is part of its continuing work, was not actually making recommendations, but rather listing potential options.
Implementing the structure to get the Patient Protection and Affordable Care Act up and running has been a major focus of the National Association of Insurance Commissioners, Kansas City, Mo., for months now. The Accident and Health Working Group, under the direction of Steve Ostlund (ALA), Julia Philips (Minn.) and Rick Diamond (Me.) are more than two-thirds of the way through the issue resolution documents between regulators and industry.
The NAIC also overwhelmingly approved a medical loss ratio blanks proposal that will allow insurers to report financial information to regulators to calculate medical loss ratios and any rebate required under the new federal law.
Additionally, regulators are starting work on the development of an NAIC model law on health exchanges that will give guidance to states as they begin to implement the legislation in 2011.
News was also delivered by Joel Ario for the Health Insurance and Managed Care “B” Committee that 45 states and the District of Columbia have had their grant requests for the creation of exchanges approved. Ario also announced that he is leaving his position as Pennsylvania insurance commissioner to take a position with Health and Human Services.
While the NAIC is working on PPACA issues, it is also focused on solvency modernization and international developments that weave solvency efforts into a global regulatory blanket. During the summer meeting a Solvency Modernization Initiative Roadmap was released by the NAIC’s Solvency Modernization Initiative Task Force. The document is a snapshot of the NAIC work to date.
The SMI focuses on five key areas:
• Capital requirements;
• Governance and risk management;
• Group supervision;
• Statutory accounting and financial reporting; and
• Reinsurance.
Statutory accounting is an area of concern for many insurers including PCI members, according to the PCI’s Jim Olsen. Insurers will be watching the process as regulators discuss the issue at the fall meeting and at a scheduled public hearing in December in preparation for a tentative decision in March 2011. Statutory accounting and equivalence issues are critical to U.S. insurers, Olsen explained.
The Antifraud Task Force and ERISA Subgroup met jointly for a public hearing on Limited Medical Benefit Plans, concentrating on the sales and marketing of the products to consumers and employers. The hearing was precipitated by a growing number of instances where health plans sold were misrepresented as comprehensive coverage, and consumers were left without medical insurance and often with significant debt. The NAIC heard testimony from representatives of the insurance industry and consumer groups. Regulators stressed the importance of clarifying disclosures at the point of sale that address what the plan specifically covers.
During the Antifraud session, Deirdre Manna of the Property Casualty Insurers Association of America, Des Plaines, Ill., commended the task force for its work including a draft model that includes strong confidentiality language but requested the removal of wording requiring specific number of hours of producer training be removed. "Insurers have many incentives to recruit, hire and train qualified personnel," she explained.
The NAIC plans to look further into how these plans may be affected by the PPACA laws and what regulators can do to address the current rise of scams related to these health care plans.
During the meeting, the Interstate Insurance Product Regulation Commission, an affiliate of the NAIC based in Washington, adopted individual long-term care uniform standards during a joint meeting of the Management Committee and Commission. The NAIC says that the standards include “strong readability requirements, consumer-friendly benefit trigger requirements and prohibition of mental health and nervous disorder exclusions." Prior to its passage Texas offered a proposal to establish stronger consumer protections.
The individual long-term care uniform standards only apply to new products filed with the IIPRC and will not affect existing long-term care products approved by a state or closed blocks of business. These uniform standards will now undergo a promulgation period and are expected to become available for filing before the end of 2010.
Insurers weighed in on a number of NAIC projects. The PCI’s Dave Kodama expressed concern that climate change questions that are supposed to be part of an aggregate report will now be required for individual companies and raised the issue of confidentiality of industry data.
PCI also weighed in on the NAIC’s decision to develop a model law to regulate insurance scoring modelers. Insurance scores are already heavily regulated by state law, according to Alex Hageli, PCI's director, personal lines policy.
“The decision to proceed with the development of the model is particularly ironic given the NAIC is also proceeding with a data to ostensibly gain more information about the use and impact of credit on insurance. It seems they require more information to study the use of credit by insurers, but nevertheless sure that a model law is needed to regulated scoring vendors,” he added.
However, consumer advocates including Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, have argued for years that the NAIC needs to address the credit scoring issue.
The NAIC's Producer Licensing Task Force met and discussed an industry proposal to streamline business entity licensing, but did not formally adopt standards, according to David Eppstein, representing PIA National. Task Force chair Linda Hall (AK) characterized the proposal as an excellent basis for discussion but wanted to give the regulators more time to review the proposed standards with their department staff.
The proposal removes the requirement for a business entity to register as a foreign corporation as a condition of obtaining or maintaining a nonresident license. The proposal is also supported by the American Insurance Association, Council of Agents and Brokers, Independent Insurance Agents and Brokers of America and the PIA National and PCI.
PIA National is working closely with other producer and carrier representatives to develop the uniform standards and we are confident that the NAIC will adopt them soon, according to Eppstein. It is possible that the standards could be adopted by the NAIC in October, he added. Once passed, Eppstein said that PIA will work to make sure that they are implemented nationwide either through regulation or legislation.
Life Actuaries at the Life & Health Actuarial Task Force also received an update from the Oliver Wyman actuarial team of Jeffrey Hancock, Amal Rajwani, and Ramy Tadros on the unintended consequences of C3 Phase II based on data from 12 of the largest variable annuity writers in the U.S. Using hedge assets as opposed to just cash assets can create unintended volatility on the balance sheet, the team told regulators. Among the potential action items that regulators could take, according to the team would be to simplify the balance sheet calculation and introducing a cap on Actuarial Guideline 43 as well as exploring peer review to ensure standards compliance. However, the team said that the updated paper, which is part of its continuing work, was not actually making recommendations, but rather listing potential options.
Tuesday, August 17, 2010
Value of NAIC Industry Liaison Group Discussed
Seattle
The value of a group that is supposed to provide dialogue that industry and regulators can use to take action or at least understand different viewpoints was questioned during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo.
“We don’t feel that we are getting any real discussion through this committee and this format,” said Jane Cline, NAIC president and West Virginia insurance commissioner. Cline said that the industry liaison session should be more productive, noting that the consumer ties regulators and industry together. “You ultimate goal is to serve consumers and our ultimate goal is protect consumers,” she noted.
Michael McRaith, Illinois director, said that any work has to be “deliverable and achievable.” For instance, he added, “eliminating rate regulation is not achievable.” And, Susan Voss, NAIC president-elect and Iowa insurance commissioner, said that the NAIC budget is continually raised as a concern and a lot of the issues raised by the committee could be brought up at other NAIC committees.
Deirdre Manna, vice president, industry, regulatory and political affairs, with the Property Casualty Insurers Association of America, Des Plaines, Ill., asserted that industry is really interested in a dialogue with regulators. For instance, she said, that industry was concerned that the insurance commissioner chosen for the non-voting position of the FFOC be one that will continue in his or her post. It is anticipated that with elections in November, a significant number of commissioners may leave with changes in governors.
Ethan Sonnichsen, NAIC director of government relations in Washington, who was delivering a report to the group on changes in Washington, concurred that it was an issue that “is absolutely front and center. We don’t want the FSOC to have an empty seat.” The Financial Stability Oversight Council is comprised of 10 federal financial regulators and five independent nonvoting members which will include one insurance commissioner.
Industry trade groups expressed concern over the filing of data in a centralized NAIC data bank. Confidentiality is a great issue to insurers, said Neil Alldredge, senior vice president of state and regulatory affairs with the National Association of Mutual Insurance Companies, Indianapolis.
The NAIC’s Voss said that because of global changes, state insurance regulators will be required to be more prepared for new global insurance regulatory requirements and from this perspective having data available in a centralized place will be important. Even if data is filed in individual states, it will be shared as part of the effort to regulate companies, she added. And, Voss added, that at some point, a federal entity may want to gather data, whether it is the Federal Insurance Office or the U.S. Treasury.
But NAMIC’s Alldredge said that industry “doesn’t want to find out that there is a confidentiality problem after something has been released.”
Voss countered by asking what the concern is. “Is it the chicken or the egg? Is it that information is being requested or is it a concern over confidentiality?” Alldredge responded that it was the risk to confidentiality with more data and different kinds of data being requested.
Terri Vaughan, Ph.D., NAIC president, asked if there was an objection to the NAIC gathering data other than confidentiality. If there is, she said, “we need to know that.” Dave Snyder, vice president and associate general counsel with the American Insurance Association, Washington, said that the main issue is the NAIC’s capability to protect such information. Vaughan then responded that “then it is important that you tell us what would make you comfortable.”
The value of a group that is supposed to provide dialogue that industry and regulators can use to take action or at least understand different viewpoints was questioned during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo.
“We don’t feel that we are getting any real discussion through this committee and this format,” said Jane Cline, NAIC president and West Virginia insurance commissioner. Cline said that the industry liaison session should be more productive, noting that the consumer ties regulators and industry together. “You ultimate goal is to serve consumers and our ultimate goal is protect consumers,” she noted.
Michael McRaith, Illinois director, said that any work has to be “deliverable and achievable.” For instance, he added, “eliminating rate regulation is not achievable.” And, Susan Voss, NAIC president-elect and Iowa insurance commissioner, said that the NAIC budget is continually raised as a concern and a lot of the issues raised by the committee could be brought up at other NAIC committees.
Deirdre Manna, vice president, industry, regulatory and political affairs, with the Property Casualty Insurers Association of America, Des Plaines, Ill., asserted that industry is really interested in a dialogue with regulators. For instance, she said, that industry was concerned that the insurance commissioner chosen for the non-voting position of the FFOC be one that will continue in his or her post. It is anticipated that with elections in November, a significant number of commissioners may leave with changes in governors.
Ethan Sonnichsen, NAIC director of government relations in Washington, who was delivering a report to the group on changes in Washington, concurred that it was an issue that “is absolutely front and center. We don’t want the FSOC to have an empty seat.” The Financial Stability Oversight Council is comprised of 10 federal financial regulators and five independent nonvoting members which will include one insurance commissioner.
Industry trade groups expressed concern over the filing of data in a centralized NAIC data bank. Confidentiality is a great issue to insurers, said Neil Alldredge, senior vice president of state and regulatory affairs with the National Association of Mutual Insurance Companies, Indianapolis.
The NAIC’s Voss said that because of global changes, state insurance regulators will be required to be more prepared for new global insurance regulatory requirements and from this perspective having data available in a centralized place will be important. Even if data is filed in individual states, it will be shared as part of the effort to regulate companies, she added. And, Voss added, that at some point, a federal entity may want to gather data, whether it is the Federal Insurance Office or the U.S. Treasury.
But NAMIC’s Alldredge said that industry “doesn’t want to find out that there is a confidentiality problem after something has been released.”
Voss countered by asking what the concern is. “Is it the chicken or the egg? Is it that information is being requested or is it a concern over confidentiality?” Alldredge responded that it was the risk to confidentiality with more data and different kinds of data being requested.
Terri Vaughan, Ph.D., NAIC president, asked if there was an objection to the NAIC gathering data other than confidentiality. If there is, she said, “we need to know that.” Dave Snyder, vice president and associate general counsel with the American Insurance Association, Washington, said that the main issue is the NAIC’s capability to protect such information. Vaughan then responded that “then it is important that you tell us what would make you comfortable.”
Monday, August 16, 2010
Retained Asset Account Discussion Starts NAIC Review
Seattle
State insurance regulators held the first of what they say will be a series of discussions to determine whether the treatment of retained asset accounts is a problem and if so, how they can resolve it.
The large ballroom here during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo., was filled with attendees interested in hearing more on the issue. The topic has created concern in Congress and prompted New York Attorney General Andrew Cuomo to start an investigation into the matter. The debate started after Bloomberg Markets magazine ran an article detailing how a beneficiary of a U.S. service man was unable to use a check tied to the account and how the accounts earned insurers large interest spreads for their general account portfolios.
The new joint working group is headed by Connecticut Commissioner Tom Sullivan and New Hampshire Commissioner and former NAIC President Roger Sevigny.
The discussion started with insurers attempting to describe RAAs and what they say it does for the client. According to testimony from Todd Katz, executive vice president of U.S. business for MetLife and Bernard Winograd, executive vice president and chief operating officer of Prudential’s U.S. businesses, the product has been around for 25 years; is not a bank account; offers the option of withdrawing all death benefit proceeds at any time; and, is covered by state insurance guaranty funds.
Katz said that a third of those who have accounts with Met close them within two months and 60% withdraw all the funds and close them within a year. Interest starts accruing right away and ranges from 3% to 1.5% to 0.5% depending on how old the policy is, he continued. Nearly half of those who have these accounts with Met are earning 3% on their money and 80% are earning at least 1.5%, he continued. Katz also acknowledged that the accounts make money for Met.
He also said that the claim form has a list of options to receive the death benefit and that if none is chosen, there is a default to an RAA. He maintained that the claim form clearly lays out the options to consumers, but Maine Superintendent Mila Kofman countered that “What is clear to lawyers may not always be clear to consumers.”
Prudential’s Winograd said that 20% of Prudential’s RAA accounts take all the money out within 90 days after the account is opened and 60% close them within a year. A total of 99% of the accounts are at least used within the year, he said. The accounts, which were sold in a higher interest rate environment, offer a guaranteed minimum of 2.5%, Winograd added.
If the accounts are not utilized, according to Met’s Katz, a quarterly statement is sent to the beneficiary once a quarter and if the beneficiary cannot be found, a search is undertaken before the funds are sent to the state’s unclaimed property bureau.
New Jersey Insurance Commissioner Tom Considine noted that RAAs, which are supplemental accounts, are not filed with departments. He asked Katz and Winograd if they feel the accounts would be better regulated if they had to be filed with the department. Both Katz and Winograd said that it would be appropriate to have a dialogue on the point.
The point was then made that the Interstate Insurance Product Regulation Commission, Washington, might be able to work on standards for these accounts.
The discussion then turned to how group life contracts had different provisions depending on the employer. In some cases, according to the dialogue, individual beneficiaries were still allowed to make their own selection but in other cases, the employer could make the distribution selection for the employees’ beneficiaries.
Following the company presentation, Peter Gallanis, president of the National Organization of Life & Health Insurance Guaranty Associations, Herndon, Va., asserted that these accounts and interest accrued are covered by guaranty fund associations in the event of an insolvency.
Brendan Bridgland, director of the Center for Insurance Research, Cambridge, Mass., noted the potential for a conflict of interest if insurers were making profit from these accounts and cautioned that the argument that the interest was at least as good if not better than bank accounts assumed that the beneficiary would not put funds in a higher paying savings vehicle such as a long-term certificate of deposit.
State Rep. Brian Kennedy, D-Hopkinton, R.I., spoke on behalf of the National Conference of Insurance Legislators, Troy, N.Y. Kennedy said that in order to protect consumers and offer appropriate disclosures NCOIL was developing its own model law. The model, Kennedy said, was written by state Rep. Robert Damron, D-Nicholasville, Ky., and incorporates a statute from North Carolina, a North Dakota bulletin, and language from a Maryland law as well. The model was developed within the last week, Kennedy added.
Connecticut’s Sullivan responded by saying he wondered whether a model would offer an expedient solution since it would take time to develop and complete and put in place in states. He said that the same end could be reached by using a model bulletin that could be issued immediately by states.
Kennedy noted that Congress is looking to take action and a model law would signify similar concern at the state level.
Following the session, Illinois Director Michael McRaith said “based on what we know now, disclosure does appear to be the best solution. When asked about creating standards through the IIPRC (Compact Commission), McRaith said that it was one solution but that at this point there are still several large states that are not members. He said that a bulletin would be a more expedient solution.
A former regulator and attendee said that RAAs in general, do not benefit the consumer because the company is holding onto the beneficiaries money and delaying a payout. The former regulator said that it has nothing to do with helping the grieving beneficiary and everything to do with holding onto funds for as long as possible.
State insurance regulators held the first of what they say will be a series of discussions to determine whether the treatment of retained asset accounts is a problem and if so, how they can resolve it.
The large ballroom here during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo., was filled with attendees interested in hearing more on the issue. The topic has created concern in Congress and prompted New York Attorney General Andrew Cuomo to start an investigation into the matter. The debate started after Bloomberg Markets magazine ran an article detailing how a beneficiary of a U.S. service man was unable to use a check tied to the account and how the accounts earned insurers large interest spreads for their general account portfolios.
The new joint working group is headed by Connecticut Commissioner Tom Sullivan and New Hampshire Commissioner and former NAIC President Roger Sevigny.
The discussion started with insurers attempting to describe RAAs and what they say it does for the client. According to testimony from Todd Katz, executive vice president of U.S. business for MetLife and Bernard Winograd, executive vice president and chief operating officer of Prudential’s U.S. businesses, the product has been around for 25 years; is not a bank account; offers the option of withdrawing all death benefit proceeds at any time; and, is covered by state insurance guaranty funds.
Katz said that a third of those who have accounts with Met close them within two months and 60% withdraw all the funds and close them within a year. Interest starts accruing right away and ranges from 3% to 1.5% to 0.5% depending on how old the policy is, he continued. Nearly half of those who have these accounts with Met are earning 3% on their money and 80% are earning at least 1.5%, he continued. Katz also acknowledged that the accounts make money for Met.
He also said that the claim form has a list of options to receive the death benefit and that if none is chosen, there is a default to an RAA. He maintained that the claim form clearly lays out the options to consumers, but Maine Superintendent Mila Kofman countered that “What is clear to lawyers may not always be clear to consumers.”
Prudential’s Winograd said that 20% of Prudential’s RAA accounts take all the money out within 90 days after the account is opened and 60% close them within a year. A total of 99% of the accounts are at least used within the year, he said. The accounts, which were sold in a higher interest rate environment, offer a guaranteed minimum of 2.5%, Winograd added.
If the accounts are not utilized, according to Met’s Katz, a quarterly statement is sent to the beneficiary once a quarter and if the beneficiary cannot be found, a search is undertaken before the funds are sent to the state’s unclaimed property bureau.
New Jersey Insurance Commissioner Tom Considine noted that RAAs, which are supplemental accounts, are not filed with departments. He asked Katz and Winograd if they feel the accounts would be better regulated if they had to be filed with the department. Both Katz and Winograd said that it would be appropriate to have a dialogue on the point.
The point was then made that the Interstate Insurance Product Regulation Commission, Washington, might be able to work on standards for these accounts.
The discussion then turned to how group life contracts had different provisions depending on the employer. In some cases, according to the dialogue, individual beneficiaries were still allowed to make their own selection but in other cases, the employer could make the distribution selection for the employees’ beneficiaries.
Following the company presentation, Peter Gallanis, president of the National Organization of Life & Health Insurance Guaranty Associations, Herndon, Va., asserted that these accounts and interest accrued are covered by guaranty fund associations in the event of an insolvency.
Brendan Bridgland, director of the Center for Insurance Research, Cambridge, Mass., noted the potential for a conflict of interest if insurers were making profit from these accounts and cautioned that the argument that the interest was at least as good if not better than bank accounts assumed that the beneficiary would not put funds in a higher paying savings vehicle such as a long-term certificate of deposit.
State Rep. Brian Kennedy, D-Hopkinton, R.I., spoke on behalf of the National Conference of Insurance Legislators, Troy, N.Y. Kennedy said that in order to protect consumers and offer appropriate disclosures NCOIL was developing its own model law. The model, Kennedy said, was written by state Rep. Robert Damron, D-Nicholasville, Ky., and incorporates a statute from North Carolina, a North Dakota bulletin, and language from a Maryland law as well. The model was developed within the last week, Kennedy added.
Connecticut’s Sullivan responded by saying he wondered whether a model would offer an expedient solution since it would take time to develop and complete and put in place in states. He said that the same end could be reached by using a model bulletin that could be issued immediately by states.
Kennedy noted that Congress is looking to take action and a model law would signify similar concern at the state level.
Following the session, Illinois Director Michael McRaith said “based on what we know now, disclosure does appear to be the best solution. When asked about creating standards through the IIPRC (Compact Commission), McRaith said that it was one solution but that at this point there are still several large states that are not members. He said that a bulletin would be a more expedient solution.
A former regulator and attendee said that RAAs in general, do not benefit the consumer because the company is holding onto the beneficiaries money and delaying a payout. The former regulator said that it has nothing to do with helping the grieving beneficiary and everything to do with holding onto funds for as long as possible.
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