Saturday, July 31, 2010

The Retained Asset Account Firestorm

A firestorm ignited this week when Bloomberg Markets magazine reported that over 100 insurance companies earn investment income on $28 billion to life insurance beneficiaries because of a retained asset accounts.

The issue is emotional because it involves two emotional issues: death and money. The emotional fire is being fanned higher because many of the accounts in question are said to be from policyholders of deceased U.S. service men and women at a time when our country is in the midst of wars in Afghanistan and Iraq.

The firestorm deserves and is likely to receive a great deal of scrutiny over the coming weeks. What will tamp out these flames is a commitment to treating deceased policyholders and their beneficiaries with respect which includes honesty; a review to ensure there has been no intentional or unintentional illegal activity; the willingness to restore lost monies if beneficiaries have been illegally harmed or have been misled; and a commitment to strengthening disclosure requirements to future bereaved beneficiaries.

The Story

The story focuses on companies offering beneficiaries retained asset accounts. A retained asset account is an option in which a beneficiary can leave the money with an insurer. The death benefit draws a stated amount of interest and has access to the money in the account. In some cases, there is a check book system in which the beneficiary can draw upon assets.

The issue has New York U.S. Attorney General Andrew Cuomo and the U.S. Department of Veteran Affairs examining the option. In a statement from AG Cuomo’s office, on July 29, he said that his office has served subpoenas on Prudential Financial, Inc., Newark, N.J., and MetLife, Inc., New York.

Bloomberg is reporting that Genworth Financial, Richmond, Va.; Guardian Life Ins. Co. of America, New York; New York Life Ins. Co., New York; and Northwestern Mutual Life Ins. Co., Milwaukee, have confirmed that they have received subpoenas. It is also reporting that an unidentified source familiar with the matter says that Unum Group, Portland, Me.; and a unit of AXA SA, Paris, have also been subpoenaed.

Cuomo’s Response

AG Cuomo is raising several questions about the death benefit option. In a statement, his office says:

“It appears that the substantial interest earned on these accounts mostly benefit and enrich the insurers at the expense of the families to whom the money really belongs. And, beneficiaries are not adequately informed by the insurers of the details of these accounts including the fact that the insurers are making huge profits at the expense of the grieving family.

“Specifically, the insurers place the cash belonging to these families in the insurers’ corporate accounts, reportedly earning the companies upwards of 4.8%. The insurers then pay families as little as 0.5% interest, less than half the rate available at some FDIC insured banks. In short, beneficiaries are unaware that the insurers are reaping enormous, secret profits on these accounts, while the families are losing out on significant potential earnings.

“Furthermore, because insurers do not put the cash owed to families in banks insured by the FDIC, but instead in the insurer's corporate account, these assets may not be safe, are not protected by FDIC rules, and may be subject to the insurer’s creditors.

“Prudential beneficiaries also receive what appears to be a "checkbook," with "checks" bearing the name of JPMorgan Chase & Co. Prudential beneficiaries are not informed by Prudential that these so-called "checks" may not be able to be used to make purchases and are not bank checks at all. Instead, Prudential must send money to JPMorgan Chase before the checks can clear. Prudential beneficiaries are also not informed that under a 2008 law, they have one year to place the death benefits in a Roth IRA and earn tax-free investment gains for the rest of their lives. Thus, real financial harm is suffered by Prudential's lack of disclosure.”

Insurers’ Responses

Prudential released a statement on July 29 in which it states that:

• Beneficiaries are vulnerable targets for abusive sales tactics. We believe that the Alliance Account takes the pressure off beneficiaries to do something with the money—a situation that may lead to imprudent and expensive investment decisions.
o Our program provides a secure, conservative option and access to an independent advisor.
o Beneficiaries who feel confident about making decisions right away have full access to their funds, which may be deposited in the financial institution of their choice, with funds earning interest until presented for payment.
o We do not think it makes sense to force people to make decisions in a difficult and complex financial environment during a very emotional time in their lives.

• Beneficiaries who find a better interest rate can move the money by simply writing a draft.

• Beneficiaries receive the entire amount they are owed plus interest in their account. Prudential does not in any way take money from beneficiaries.

• More than 40,000 Prudential Alliance Account drafts cleared last year. We receive few complaints from beneficiaries about difficulties.

Prudential also states that it fully discloses in its material that its retained asset accounts are not FDIC insured but that the accounts are protected by state guaranty funds that provide “protection of at least $250,000 in most states.”

Bloomberg reports that Met Life’s CEO Robert Henrikson said during an analysts’ call that beneficiaries have access to funds and “our account holders tell us they love it.”

Regulators Speak Out

In response, the National Association of Insurance Commissioners, Kansas City, Mo., held a conference call on July 30 to address the issue. The Insurance Bellwether asked Connecticut Commissioner Thomas Sullivan’s office whether the issue would be addressed at the NAIC summer meeting in Seattle in a week and a half at the Life & Annuities “A” Committee. A spokesperson referred to a statement released by NAIC President, Jane Cline, West Virginia insurance commissioner on July 29.

Cline states that the accounts have been available for two decades and were initially created at “the request of consumers to provide options for receiving benefits from a life insurance policy, and with proper disclosure, consumers have generally been happy with this flexibility. Traditionally, consumers earn interest under these accounts, allowing their benefit to grow without the need to make impulsive decisions about how to manage the benefit.

“The NAIC is re-reviewing the disclosure requirements associated with RAA and is developing a consumer alert to help policyholders better understand the terms of these kinds of settlements. Regulators are also reviewing the transaction
requirements/terms for the "checkbook" usage associated with these types of policies.

“Depending on how an insurance company manages its RAA program, these accounts may not be FDIC insured. However, all states have a life insurance guaranty fund to protect policyholders.

“In addition, all state insurance departments maintain active consumer assistance programs to address consumer complaints, and RAAs have generated few if any complaints. Any consumer who is confused, feels they have been mistreated regarding these types of settlements, or believes there may have been a misrepresentation of the settlement terms should contact their state insurance department.”

At this time, Pennsylvania Commissioner Joel Ario is working through the NAIC framework and to the extent that there are gaps in that solution and what Pennsylvania needs and requires, additional action could be taken, Ron Gallagher, deputy commissioner in the department’s office of market regulation, said in an interview.

Currently there is an NAIC model on the books, Model # 573, which addresses this issue, according to Rosanne Placey, the department’s press secretary. The model was developed 15 years ago to provide disclosures about these types of accounts, she said.

Gallagher says that the commissioners will examine the issue independent of what New York’s Cuomo finds, but will look at all facts that arise including findings from that investigation. Pennsylvania also plans to review complaints it has received to determine if there are any issues that need to be addressed, according to Gallagher.

Possible Regulatory Solutions

If commissioners decide to proceed with additional consumer protections there are several ways they could do this. They could create questions in the market conduct annual statement that would specifically address these questions and require responses from insurance companies.

They could also create a new line in data provided in its Consumer Information Source which tracks complaint data in categories including underwriting, and marketing and sales. The marketing and sales category has lines for suitability complaints, misleading advertising and misrepresentation as well as fraud/forgery.

However, a review of the CIS system did not uncover a line for disclosure complaints. Such a line could be further broken out to include lines for disclosure complaints at the time of sale and at the time a death claim is made.

Disclosure has been an issue that the NAIC has been addressing for the past decade in various ways. Currently, a working group is looking at solutions for proper annuity disclosure.

And, if ultimately, there does turn out to be any wrongdoing, Attorneys General as well as state insurance commissioners do have the authority to address problems that come to light.

Strengthening Disclosure

To AG Cuomo’s point, a review of disclosure should include making certain that beneficiaries know all the options they have before agreeing to a retained asset account; knowing the spread between the interest rate that they are receiving and what the insurer is receiving on the monies in those accounts; knowing if there are any fees associated with these accounts; knowing the difference between FDIC guarantees and state insurance fund guarantees in the specific state they live in; and, knowing the process of using a “check book” tied to the retained asset account.

In the “Fundamentals of Insurance for Financial Planning,” by Burton T. Beam, Jr., David L. Bickelhaupt, Robert M. Crowe, and Barbara S. Poole, several types of death benefit options are described. One, the interest option, is similar to the retained asset account option. But other options detailed include the fixed-period option which pays out death proceeds and interest over a specified time period. Similarly, a fixed-amount option uses a specified amount rather than a time period. And, a life income option, according to the book, details how death benefits are used to buy a single premium annuity for the beneficiary.

Thursday, July 29, 2010

NAIC Seeks Vendor to Model Designations for CMBS

State insurance regulators are proceeding in its effort to create a system to better assess the CMBS holdings in insurers’ portfolios. On July 28, the National Association of Insurance Commissioners, Kansas City, Mo., released a request for proposal for a vendor to model expected losses on approximately 7,500 commercial mortgage-backed securities through Dec. 31, 2010.

This process will determine the NAIC designations utilized by insurance companies to calculate the solvency reserves required to cover their CMBS holdings.

At the end of 2009, the NAIC used a similar method to establish NAIC designations for more than 21,000 residential mortgage-backed securities (RMBS) owned by U.S.-domiciled insurance companies. At the NAIC's Spring National Meeting in March, its Financial Condition Committee adopted a recommendation to model CMBS at the end of 2010. This recommendation is expected to be approved by the NAIC Executive Committee/Plenary during the upcoming Summer National Meeting, Aug. 12 – 17, in Seattle.

Responses are due by Aug. 11. A vendor is anticipated to be selected by Sept. 3, 2010.

Tuesday, July 27, 2010

LISA’s Doug Head Announces Retirement

Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., has announced his retirement effective December 31, 2010.

In a July 27 letter to Russel Dorsett, president of LISA’s board of directors, Head writes “The months ahead will allow LISA to engage in a productive search for a successor and to review our programs and activities so that the transition to new leadership can be seamless.”

Head says that he remains “passionately committed to promoting public and policy-maker knowledge of the benefit that LISA Members have brought and will continue to bring to policy holders and investors.

In the letter, Head says that during his decade with LISA, the organization has grown from 13 to 130 members and have started many programs that benefit members.
Head writes, “With the release of the GAO and SEC reports this week, I know that the exhausting era of daily and constant fire-fighting is over and our establishment as a worth industry has been formally recognized and affirmed. Now we cannot be and will not be crushed by powerful opponents. Our value will become increasingly known to the American public. So it is time for me to go after a constructive transition.”

He says he will remain active in industry affairs and hopes “to continue to provide considerable support to the current and future efforts of LISA, its Staff, the Board, the Members and the Industry.”

Monday, July 26, 2010

Industry Groups React to Settlement Reports

Several insurance trade groups are reacting to two government reports on the life settlement market that were released late last week.

Although both the Securities and Exchange Commission Report and the Government Accountability Office reports say in the long run the settlement market could grow and that there is a service that the market provides to consumers, it also presented a picture of an industry that was badly hit by the economic crisis and other factors over the last year. The GAO report included a survey of life settlement providers who “reported purchasing policies with a total face value of around $5.50 billion, $9.03 billion, $12.95 billion, and $7.01 billion in 2006, 2007, 2008, and 2009, respectively.”

The groups include the American Council of Life Insurers, Washington; the Institutional Life Markets Association, Washington; and the Life Insurance Settlement Association, Orlando, Fla.

Frank Keating, president and CEO of the American Council of Life Insurers, Washington, thanked the SEC and the task force for its “thoughtful analysis of the life settlement market and the regulatory gaps that could expose investors to a variety of risks, including the very real possibility that settlement packages will be infected with stranger-originated life insurance (STOLI) transactions.”

“As the SEC Task Force report shows, there is a lack of transparency in life settlements and uncertainty over regulation of a market that has been awash in litigation. ACLI hopes that the report will add new momentum to efforts in the states and in Congress to protect investors, as well as senior citizens.”

“We are pleased that GAO recognized life settlement transactions as a viable option for policy owners,” said Jack Kelly, managing director of the ILMA, Washington. “We commend the GAO for highlighting the need for consistent regulation at the state level as the life settlements industry has grown.

“ILMA has consistently urged the adoption of uniform law and regulations and endorses the GAO recommendation to provide clear and consistent law and regulation of this marketplace.

“We agree with the GAO’s finding for the need to have full and complete disclosure to consumers. This finding validates the very reason ILMA was formed - to ensure life settlement transactions are conducted with transparency and the utmost integrity.

ILMA’s first guiding principle is transparency. We concur with the GAO for the need of uniformity, transparency, and disclosure. “The key recommendation from this report focuses on developing public policy consistency in the life settlements market,” concluded Kelly.

Doug Head, executive director of the LISA, Orlando, Fla., says that the reports underscore the value proposition of life settlements and how they can bring policyholders much more than they could receive if they surrendered the contract or allowed it to lapse.

The SEC report was prepared by a task force established in August 2009 by SEC Chairman Mary Schapiro. The report notes “inconsistent regulation of participants in the life settlements market, including those who arrange for the buying and selling of policies and those who provide estimates of an insured's life expectancy. In addition, the report notes that investors in individual life settlement transactions, or pools of life settlements, would benefit from the application of baseline standards of conduct to market participants.”

The GAO report was conducted at the behest of U.S. Sen. Herb Kohl, D-Wis., chair of the Special Committee on Aging. Among the conclusions reached in the report are:
“Inconsistencies in the regulation of life settlements may pose challenges. Policy owners in some states may be afforded less protection than owners in other states and face greater challenges obtaining information to protect their interests.”
Additionally, it found that “Policy owners also could complete a life settlement without knowing how much they paid brokers or whether they received a fair price, unless such information was provided voluntarily. Some investors may face challenges obtaining adequate information about life settlement investments.”

Thursday, July 22, 2010

Oxendine, Loses Primary Bid For Governor; Hudgens Advances in Race for Commissioner

Earlier this week, Georgia Insurance Commissioner John Oxendine lost his primary bid for governor, according to results posted on the state’s election commission. Oxendine received 115,253 or 17% of 679,702 votes in the Republican race, losing to Karen Handel who received 231,715 or 34.1%. Handel is endorsed by Sarah Palin, former Republican presidential candidate and Arizona Gov. Jan Brewer. Roy Barnes won the Democratic spot with 258,875 or 65.6% of 394,589 total votes.

In the race for insurance commissioner, state Sen. Ralph Hudgens, R-Hull, won the Republican primary with 117,348 votes edging out Maria Sheffield who received 111,185or 19.6% of a total 566,516 votes cast. The Democratic candidate, Mary Squires, who ran uncontested, received 284,064 votes.

Susan Cogswell, Former Connecticut Commissioner, Dies

There was sad news earlier this week with the announcement that Susan Cogswell, the state’s first female insurance commissioner in Connecticut, died on July 20 at the age of 57 after being hospitalized for an unidentified illness.

Cogswell was commissioner from 2000 through 2006. Prior to her appointment by former Gov. John Rowland, Cogswell served in various capacities at the Department including the department’s chief of staff and its spokesperson.

At the time of her death, Cogswell served on the board of the Torrington, Conn. Board of Education.

Cogswell’s death follows the recent passing of another former Massachusetts insurance commissioner, Linda Ruthardt. Ruthardt died on February 23 while suffering from the flu, according to an obituary in The Boston Globe. She served nearly nine years as insurance commissioner, retiring in 2002.

A Busy Week in Washington

The news highlight of the week was yesterday’s signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Barack Obama.

But there is also other major news out this week. The Government Accountability Office, released its long awaited report on life settlements to the Special Committee on Aging in the Senate, which was commissioned at the behest of its chairman Sen. Herb Kohl, D-Wis.

The report finds “inconsistencies” in the market. In its opening statement, the GAO writes:

“Inconsistencies in the regulation of life settlements may pose challenges. Policy owners in some states may be afforded less protection than owners in other states and face greater challenges obtaining information to protect their interests. Twelve states and the District of Columbia do not have laws specifically governing life settlements, and disclosure requirements can differ among the other states.

“Policy owners also could complete a life settlement without knowing how much they paid brokers or whether they received a fair price, unless such information was provided voluntarily. Some investors may face challenges obtaining adequate information about life settlement investments. Because of conflicting court decisions and differences in state laws, individuals in different states with the same investments may be afforded different regulatory protections.

“Some life settlement brokers and providers may face challenges because of inconsistencies in laws across states. GAO developed a framework for assessing proposals for modernizing the financial regulatory system, two elements of which are consistent consumer and investor protection and consistent financial oversight for similar institutions and products. These two elements have not been fully achieved under the current regulatory structure of the life settlement market.”

The Securities and Exchange Commission also is expected to release its report today. The release follows a Congressional hearing last September following a New York Times article that said that the life settlement market could be the next mortgage crisis. The story caused great concern among federal lawmakers and members of the life settlement industry.

The Bellwether will have a fuller review later.

At the signing of the historic financial services reform, the President offered some remarks including the following:

“Now, while a number of factors led to such a severe recession, the primary cause was a breakdown in our financial system. It was a crisis born of a failure of responsibility from certain corners of Wall Street to the halls of power in Washington. For years, our financial sector was governed by antiquated and poorly enforced rules that allowed some to game the system and take risks that endangered the entire economy.

Unscrupulous lenders locked consumers into complex loans with hidden costs. Firms like AIG placed massive, risky bets with borrowed money. And while the rules left abuse and excess unchecked, they also left taxpayers on the hook if a big bank or financial institution ever failed.”

Insurance trade groups also weighed in. The American Council of Life Insurers, Washington, noted that the focus of financial reform now shifts to federal regulatory agencies and how they will implement H.R. 4173 in ways that do not hamper well-functioning markets. It also welcomed the creation of a Federal Insurance Office.

The American Insurance Association, Washington, issued a statement that it will be AIA’s goal to reinforce the differences between insurance and other financial services segments and to work with regulators to make sure that regulations adhere to legislative intent.

Rating agency, A.M. Best, Oldwick, N.J., writes that the “new law presents a host of new requirements and legal uncertainties that credit ratings agencies such as A.M. Best must now address.”

For instance, the rating agency says that “For example, the new law rescinds Rule 436(g), thus exposing credit rating agencies to “expert” liability if they consent to be named as such in registration statements and related prospectuses.

“A.M. Best will not consent to the use of its ratings in registration statements and related prospectuses. The Act also exposes credit rating agencies to a lower pleading requirement in government and private lawsuits and modifies the ability of credit rating agencies to receive certain information of a material, non-public nature from issuers.”

Standard & Poor’s Corp., New York, writes that it “does not expect that the legislation will have an immediate credit impact on its ratings on U.S. insurance and reinsurance companies. Indeed, we believe several aspects of the reform bill could help U.S. insurance/reinsurance companies maintain their competitive positions in the global marketplace.”

Among the positives cited are the establishment of a federal insurance office, new national underwriting standards for home mortgages and the marginal impact on securitizations and derivatives used to manage insurance companies’ risks.
On the negative side, S&P says that “diversified insurance groups with $50 billion in consolidated assets and nonbank financial companies or bank holding companies would become subject to an assessment on large financial firms.” S&P asserts that “In our view, no insurance company (excluding American International Group Inc.) poses a systemic risk to the financial system. As such, the insurance groups subject to this assessment will likely make disbursements that are not specifically related to the risks borne by the insurance/reinsurance industry and will generally decrease absolute capital levels.”

And, finally, according to S&P, “one of the tasks of the newly formed Federal Insurance Office will be to conduct a study and report to Congress on how to modernize and improve the system of insurance regulation in the U.S. It remains to be seen what recommendations are made and how they could affect the current regulatory system. Our ratings on insurance companies consider factors such as the national and global competitive position of insurers, the quality and absolute levels of capital relative to the company's risk profile, and the sustainability of earnings. Any changes that affect these rating factors could affect ratings.”

Saturday, July 17, 2010

Regulatory Roundup

Topping regulatory news this week was the Senate’s passage of H.R. 4173, the Dodd-Frank bill, and the reaction of insurance trade groups.

“Life insurers appreciate the creation of a Federal Insurance Office which will, for the first time, establish a team of insurance experts at the Treasury Department to advise policymakers in the administration and Congress on insurance-related issues,” says the American Council of Life Insurers, Washington. “The FIO will also assist federal officials in international insurance regulatory negotiations.”

The ACLI adds that “The impact of other major provisions in the Dodd-Frank bill—including those affecting derivatives, standard of care and systemic risk—on life insurers and consumers cannot be fully assessed until the relevant federal regulatory agencies complete the rulemaking process.”

The American Insurance Association, Washington, said of the legislation that will now go President Barack Obama’s desk for his signature, “The bill passed today largely recognizes that property and casualty insurers do not pose systemic risk. This meaningful acknowledgment is a victory for the many policyholders that rely upon our low-risk business model to provide them security in times of uncertainty. The bill also takes necessary steps to prevent insurers from being lumped into many of the new “bank-focused” provisions. This, too, is a substantial recognition of the insurance business model.”

AIA goes on to say that with 250 new regulations to be implemented by 11 different federal agencies, the “intense rulemaking process” will be AIA’s top priority. AIA said that its focus will remain on identifying how the insurance and banking markets are different.

AIA says that the FIO proposal “will increase the federal government’s capacity to address insurance related issues and will make a substantial contribution toward broadening and deepening our nation’s understanding of the critical role of insurance in our financial system.”

Separately, AIA urged the House of Representatives to pass H.R. 5114, legislation that would extend the National Flood Insurance Program for five years stressing that recent lapses in the NFIP due to short-term extensions have caused disruptions to disruptions to homeowners, businesses and hindered real estate closings nationwide.

On the Dodd-Frank bill, the National Association of Mutual Insurance Companies, Indianapolis, said that “…the final version of this bill does not impose onerous new federal or dual regulation on the property/casualty insurance industry.”

NAMIC said that it remained concerned with the bill as a whole but also “recognizes that the property/casualty insurance industry is unique among financial services and recognizes the prudent management of p/c insurance companies – particularly mutual insurance companies – and the performance of the states in protecting consumers and ensuring solvency since the financial crisis began.”

On the FIO, NAMIC said that it will continue to monitor its development to make sure that it remains true to its initial intent: “to provide information and expertise about the insurance industry to policymakers.”

On the NFIP bill, NAMIC expressed disappointment that the original bill was changed by an amendment offered by Rep. Gene Taylor, D-Miss., which it says added “bureaucratic hurdles to writing coverage and the claims process.” The disappointment over the measure was echoed by AIA.

According to NAMIC, the original bill sponsored by Rep. Maxine Waters, D-Calif., “would have phased in actuarially sound rates and increasing coverage limits. Rep. Waters’ bill also gradually introduced the use of updated flood maps to help homeowners who find themselves in a flood zone adjust their budgets to include flood insurance premiums.”

On the state level, the National Association of Insurance Commissioners, Kansas City, Mo., released its 23rd edition of the Insurance Department Resources Report which was developed through a survey of states and includes information such as:

• Premiums increased by 9.9 percent to $1.8 trillion from 2008 to 2009.
• In 2008, the five states with the most premiums written in all lines were California, New York, Florida, Texas and Pennsylvania. These five states accounted for 42.9 percent of all insurance premiums in the United States.
• There were 7,869 domestic U.S. insurers in 2009.
State insurance departments received more than 322,000 official complaints and 2.4 million inquiries.

And, the NAIC’s PPACA actuarial subgroup of the Accident and Health Working Group continues its work on developing standards to implement the Patient Protection and Affordable Care Act, under the direction of Alabama regulator Steve Ostlund.

This week, the subgroup discussed a meeting with the commissioners in which Ostlund said that support for the subgroup’s work was offered and that the subgroup was asked to continue in its efforts.

The subgroup continued work on several issue resolution documents (IRDs) including: IRD 070 which addresses premium discounts and rebates for wellness programs.

Regulators said that care needed to be taken not to double count discounts in the rate calculation. Minnesota regulator Julia Philips said that it is problematic to show discounts for premium wellness programs, an issue she said was not part of the subgroup’s charge. Oklahoma regulator Frank Stone agreed, asking how regulators would break out smoker/non-smoker related wellness programs.

The discussion then continued on IRDs 015 and 035 in which South Carolina regulator Leslie Jones discussed a response from an interested party about how to deal with capitation plans. The discussion among regulators focused on whether there was sufficient information before adopting the IRDs. The discussion weighed whether fee-for service plans would be disadvantaged. Regulators leaned toward monitoring the development of the capitation market but not taking action at this time.

Wednesday, July 14, 2010

The Hartford Sees Continued Promise in Accelerated Death Benefit Rider

Hartford Life, Simsbury, Conn., is betting that consumers will increase their use of accelerated death benefits to pay for chronic care needs.

Why? When the rider launched in 2007, the company had expected 10-15% of permanent policies purchased by Hartford Life policyholders to buy the rider, LifeAccess. The number was closer to 25%, according to Hartford Life’s spokesperson Bob DeMallie.

The reason may be both the need among baby boomers and the need for flexibility, Robert Pokorski, M.D., chief medical strategist in the Hartford’s Woodbury, Minn. individual life division explains in an interview with The Insurance Bellwether. He says that there has been a 50% increase in the sale of this feature, although he acknowledges that it is off of a small base.

The company is intensifying its efforts among wire houses and banks to offer the product, Pokorski adds. He offers data which says that 31% of those over 65 do not need medical care and another third end up in a nursing home. A total of 37% that need treatment initially have it done by family members and often the cause of placing a loved one in a nursing home is due to caregiver fatigue, he adds.

This is where the he says the flexibility of an accelerated benefit rider comes in. The money can be used for any kind of chronic care need and can be paid out up to 2% of the death benefit annually or an IRS cap of $290 a day.

An accelerated benefit rider takes care of the ‘Use It or Lose It’ issue where people who pay into a long-term care policy and don’t use it, are concerned about the loss of premium dollars. It is like auto or home insurance where a policyholder should be glad that they are not using it but human nature proves otherwise, Pokorski explains.

Saturday, July 10, 2010

NCOIL Meeting Coverage—Disclosure Option Receives Discussion

How much should consumers know about their options when a contract is about to lapse? The issue was debated here during the summer national meeting of the National Conference of Insurance Legislators, Troy, N.Y.

State insurance legislators heard testimony but deferred action on the issue. Kentucky has just enacted legislation that mirrors laws in Maine and Washington State. Information is required to be provided when there is a lapse on a form that the Kentucky insurance department provides. The form is sent along with the notice of lapse, according to Rep. Bob Damron, D-Nicholasville, Ky., NCOIL president.

Michael Lovendusky, representing the American Council of Life Insurers, Washington, D.C., started the testimony by saying that it is akin to a Chevrolet dealer having to tell a potential customer about a Ford. But later, North Dakota Rep. George Keiser, R-Bismarck, NCOIL president-elect, said that a customer going into a Chevrolet dealer knows about Fords but policyholders may not have information on all their options including settlements.

Life insurers are opposed to a disclosure form that makes contract holders aware of a life settlement option for a variety of reasons, he said. One reason is that it fractures the relationship with a client and another is that it creates a false impression that a settlement option may be available when actually, it is not, according to Lovendusky. The result may be that thousands of dollars of premium paid may be wasted on an unwanted contract because of the expectation that a settlement option will be available, he noted.

A total of 85,596 policies were lapsed or settled and of that total, only 2 were settled, according to data cited by Lovendusky. The reason, he told NCOIL legislators, is that most policyholders do not fit the profile for a settlement candidate: over 70 with a universal life policy of $1 million or more.

Michael Freedman, representing Coventry, Fort Washington, Pa., said that seven states have adopted some disclosure requirement. These requirements, he said, are not about life settlements, but more broadly disclosure of all options when a policy is in danger of lapsing. These disclosure forms simply give consumers information about options that they may pursue. For instance, Washington State’s disclosure form lists eight options, one of which is a life settlement.

Chris Orestes, an agent and owner of a family long-term care facility business in Maine, said that a disclosure form provides information that makes it possible for families to look into ways for paying for an assisted living or nursing home.

Separately, NCOIL legislators decided not to pursue any model law addressing stranger-originated annuity transactions (STAT) at this time but rather to defer the issue until a need arises. The decision was made after legislators decided that there were enough tools including tighter underwriting to address problems that may arise.

ACLI’s Lovendusky agreed, saying that at the present time insurers are able to monitor STAT and that consumers are not in danger.

Doug Head, executive director with the Life Insurance Settlement Association, Orlando, Fla., said that legislators need to keep in mind that these transactions have nothing to do with the life settlement industry.

Friday, July 9, 2010

NCOIL Meeting Coverage—Cooperation Imperative Panelists Warn

State legislators and regulators are saying that it is imperative that they work together to prevent federal encroachment over insurance regulation.

The grim warning was made during the summer national meeting of the National Conference of Insurance Legislators, Troy, N.Y. And, a call was made for legislators and regulators to put aside past differences and really work together to weigh in on issues where the case for state authority can still be made.

Rep. Bob Damron, D-Nicholasville, Ky., and NCOIL president, said that it is “imperative” that NCOIL and the National Association of Insurance Commissioners, Kansas City, Mo., focus on working together on issues such as producer licensing. If more can’t be done, the “clout” of federal preemption could minimize the ability of state legislators and regulators to help consumers, he added.

“We always say that we want to work together. We have got to mean it now,” said New York state Sen. James Seward, R-51st senate district. If that doesn’t happen, he said that he predicts the Federal Insurance Office will “fill out any vacuums out there. We are at a very critical time.”

The discussion focused on why the time is critical: the passage of the Dodd-Frank Act (HR 4173), as well as the likelihood of a large turnover in state insurance commissioners, governors and state legislators.

Terri Vaughan, president and CEO of the NAIC, expressed frustration that in spite of all regulators’ efforts to put in place framework’s such as a national system on producer licensing, different state viewpoints on issues such as fingerprinting have hampered progress. She added that with the Federal Insurance Office issue coming before Congress in the next session, regulators could use state legislators’ input.

Washington is very bank-centric and there needs to be an insurance presences, said Susan Voss, Iowa insurance commissioner and NAIC –president-elect. She noted how the incredible amount of “heavy lifting” required to retain state authority for indexed annuities and get a favorable outcome with Rule 151A.

The topic then turned to the possible loss of state revenue from premium taxes. Voss said that such a potential loss can rally governors to send letters to their congressional delegations.

Thursday, July 8, 2010

NCOIL Meeting Coverage--States Squeezed By Federal Requirements and a Weak Economy

State insurance legislators are asking how states are going to pay for health care costs including Medicaid in the midst of a fragile economy.

The theme surfaced during the summer national meeting of the National Conference of Insurance Legislators, Troy, N.Y.

Part of the answer may be a willingness to be more flexible in finding solutions, as Vermont Gov. Jim Douglas, chair of the National Governors Association, Washington, offered during a luncheon speech here. Douglas said that the number of Medicaid patients in his state was expected to grow from 25% to 28% by the end of the year. Given the large increase in costs that would be passed onto Vermont, Douglas said he went to the U.S. Department of Health and Human Services and to CMS and said that his state would be willing to accept less money if it was allowed more flexibility in how that money was spent.

Ultimately, Vermont was allowed a 5-year super waiver during which a cap was put on monies received in return for the ability to spend it in areas such as preventive care. That flexibility helped save $250 million over that 5-year period, he added. Part of that program involved determining who were heavy users of the system and getting them teams of professionals that included dieticians and other medical experts, Douglas continued.

Douglas told the NCOIL luncheon audience that it also makes sense for states to work together. For instance, he quipped, “the second largest hospital in Vermont is in New Hampshire.”

But even with the potential for cost-savings through greater innovation, states are staring at some huge costs, according to state legislators. For instance, New York spends $1 billion a week on Medicaid, according to state Sen. William Larkin, R-Cornwall-on-Hudson, N.Y. And, Rep. George Keiser, R-Bismarck, said that in North Dakota for a state of 650,000 residents, the cost for one segment of implementing the new federal health care law will be $106 million.

And with a challenging economy, unemployment increases the burden on states according to data presented by Rick Fenton, deputy director of health services with the National Association of State Medicaid Directors, Washington. According to the data provided during a session on ‘Funding Challenges Integrating Medicaid, Medicare & Private Plans,’ for every 1 percent increase in unemployment, a million additional Medicaid clients are added.

Scott Pattison, executive director with the National Association of State Budget Officers, Washington, said that data showed that Medicaid spending in states would increase 10.5% in 2010.

And, the conversation during the NCOIL session suggested that if states had to pay for federally mandated health insurance requirements, other parts of their budgets would have to be cut.

NCOIL Meeting Coverage--Frank Says OFC Is on the Table for Next Year

Rep. Barney Frank, chair of the House Committee on Financial Services, says that the committee will take up the issue of an Optional Federal Charter during the next session.

Frank made his remarks to a crowded room of state legislators and insurance industry participants during the summer national meeting of the National Conference of Insurance Legislators, Troy, N.Y.

Frank promised to be a “neutral broker” on the issue and open it up in deference to fellow members in Congress. When the OFC issue is raised, Frank said that he will insist that there are consumer protections at the federal level and as well as at the state level. He advised anyone with strong feelings on the matter to start talking to your representatives in Congress.

During his speech, he also said that insurers should not be concerned about the inside buildup in life insurance policies being taxed because even if the proposal is presented it would not have traction in Congress.

He added that the issue is not divided by party lines. Other issues Frank said are not broken out along party lines include reforming the structure of the Federal Reserve Bank and reforming the availability of funding for housing. Frank says that the appointment of seven regional bank presidents selected by private citizens creates the possibility of “undue influence from banks.” And, he continued, the approach to housing needs to be changed after Fannie Mae and Freddie Mac, troubled federal housing agencies, are ended. Rather than make funds available solely for buying a house, Frank says that the government should help make rental units available either by building them or using foreclosed properties. The reason, he explains, is that a homeowner needs both resources and an “integrated life” that allows them to manage unforeseen circumstances.

On the unforeseen circumstance of the collapse of American International Group, New York, Frank reiterated that state insurance commissioners and state regulation was sound, protected consumers and resulted in strong insurance units at the troubled financial services company.

In fact, according to Frank, were profitable enough to send cash to the top of the company where money was not managed as well. He noted that management did not have a clear idea of what it owed on insurance it had written on mortgage-backed securities.
He added that the current version of the Dodd-Frank Act of 2010 (HR 4173) which he says has the votes in the Senate to pass, establishes an office which will provide insurance expertise but also is different from the Senate version of the bill which created broader powers to establish international agreements. The House version uses a narrower definition and allows for issues to be contested in courts.

And, he said, that the current legislation includes a ‘risk matrix’ so that financial institutions with more risk will pay a larger assessment. So, insurance companies should fare well and pay less than banks that have bigger risk, Frank added.

When this bill is passed, Frank said that “the regulation of insurance will have changed far less than other areas.”

Frank was asked whether credit default swaps should be regulated at the state level. He responded that they are used for a wide range of activities beyond insurance, noting however, that there was some abuse of these instruments. He added that CDS are really financial instruments.

Friday, July 2, 2010

SBLI USA Stops Writing Business

SBLI USA and S. USA have stopped writing new business as of June 30, the New York insurance department has confirms.

The company says in a June 8 letter that it retains its commitment to policyholders under a management team that will be led by Mike Akker, currently chief operating officer, who will assume the position of president and CEO.

The company is not going to be put into rehabilitation, according to David Neustadt, a department spokesperson. It is a closed block of business that will be in runoff, he adds. The decision is voluntary and was made because it was spending more money to grow the business than it was taking in, he says. The company is solvent and has proper asset/liability matching, according to Neustadt. However, if it continued on the path it was on, eventually, it would have had solvency problems, he explains. As of 12/31/2009 it was 252% of the company action level (504% of the authorized control level), Neustadt says.

In the June 8 letter to policyholders, the company said that “as we all know, it has been a tough economic climate for the past few years, and SBLI USA has not been immune. Given the environment, it was clear to us that additional capital would be necessary for SBLI USA to continue to compete and grow in the future.”

The letter continued, explaining that the company had sought options for the past year but none had come to fruition. The company also said that it had been hampered by “structural impediments that limit our flexibility.”