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.

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.

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.

Tuesday, August 17, 2010

Value of NAIC Industry Liaison Group Discussed

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

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.

Final Drive Promised to Wrap Annuity Disclosure Work

State insurance regulators are promising to give work on better annuity disclosures a final push so that it can be advanced by October.

Regulators have been working on suitability and annuity disclosure because they say that these products are complex and need to be explained to the public in a better way.

The project is well along, but regulators and industry are still working on several points including when illustrations need to be presented and how to treat fixed annuities that are not regulated by FINRA, Washington. Work on disclosure of variable annuities is designed to parallel FINRA requirements so that the process will be more streamlined.

The discussion took place here during the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo. The goal, according to Jim Mumford, chair of the annuity disclosure working group and Iowa deputy commissioner, is to work intensely on the draft in September and advance it to the NAIC’s Life & Annuity “A” Committee during its fall meeting in Orlando in October.

Regulators want companies to provide a disclosure if an illustration is provided with a policy. So, if one policy in a policy form is illustrated all of the same policy types would have to be illustrated using a template developed by the American Academy of Actuaries, Washington.

Insurers should have the flexibility to provide disclosure on illustrated policies when they feel it is appropriate, according to Kelly Ireland, senior counsel-insurance regulation, with the American Council of Life Insurers, Washington.
Another issue that will need to be resolved, Mumford said during the working group session, is FINRA safe harbor language which applies when a summary prospectus is filed. However, since a summary prospectus has not yet been approved by the Securities and Exchange Commission, it could not be used to fulfill disclosure requirements, he explained.

The proposed disclosure requirement in combination with other requirements will create duplicative regulation, Kelly explains.
However, even with the need to make changes, there has still been progress made in the model’s development, she adds.

Saturday, August 14, 2010

Nonforfeiture Project Requires Careful Navigating, NAIC Discussion Suggests

Regulators and industry should be enthusiast about efforts to update nonforfeiture requirements in life insurance contracts, according to a discussion during the summer national meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

Nonforfeiture values in contracts are minimum amounts that policyholders are entitled to if a policy lapses or is surrendered. Those amounts can be satisfied with cash or insurance contracts.

While the current nonforfeiture reserving system is “not smashed, it is creaky,” according to John MacBain, chair of the nonforfeiture improvement working group of the American Academy of Actuaries, Washington, told the NAIC’s Life & Health Actuarial Task Force. He explained that the current system does not do all it can do in today’s environment and that a revamped system has the potential to bring more products to market, lower consumer costs and offer more simply designed insurance and annuity products.

For companies, MacBain continued, it would make it easier to innovate and to react more quickly to consumers’ needs. For regulators, it would enhance regulatory oversight and create more flexibility, he added.

Nonforfeiture has been a project that has been discussed in various incarnations for the last 20 years by LHATF. One of the reasons, as Paul Graham, chief actuary with the American Council of Life Insurers, Washington, explains, is that there are some major issues including potential tax consequences that could put the industry in a spin. Graham said that he was glad to hear that the Academy group was talking to tax experts, noting that the Treasury department is looking to raise revenue to fund government expenditures and changes to the nonforfeiture law run the risk of putting a bull’s eye on the tax deferred buildup of insurance policies, particularly if nonforfeiture becomes “no more than a glorified bank account.”

Utah regulator and actuary Tomasz Serbinowski distinguished between policy issues and technical issues and said that the working group should focus on technical issues.

The discussion among regulators continued with a discussion of how recent life settlement activity, the sale of a policy to a third party, was in part driven by “a disconnect between nonforfeiture values” and how “someone will find a way to give money [to contract holders].” The result, according to the discussion, is that regulators are left to find regulation that “will squash such economic activities. Other industries that feed on certain features of these policies.”

VM-20 Road Test Planned

The last major piece of the principles-based approach (PBA) to reserving is ready for its road test.

An RFP is being put out to test a key part of the Valuation Manual, VM-20, according to Larry Bruning, chief actuary with the Kansas insurance department and chair of the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo. VM-20 establishes requirements for principles-based reserves for life products. Bruning offered the update during the summer NAIC meeting here.

The Valuation Manual is the roadmap that provides directions for complying with another component of PBA, the revised Standard Valuation Law. The model law was passed in 2009 and is the backbone of PBA. SVL is being held until the Valuation Manual is adopted by the full NAIC body. Together, the two components of PBA will be brought to state legislatures.

Bruning offered details of the RFP to LHATF regulators. A universe of over 60 companies that have over $100 million in new life premium will represent the universe of companies to be tested, according to Bruning. The companies were selected to represent a spectrum of businesses including small companies and reinsurers, he said. Products covered in the test will include different term products, various universal life products, indexed life products, variable universal life products, and participating and non-participating whole life products, Bruning added.

The consultant will manage the process on a day-to-day basis and industry will select scenarios, build financial models, set assumptions run models, and compile results, he said. It is scheduled to be selected by the end of August and a final report is anticipated by the end of 2010.

Paul Graham, chief actuary with the American Council of Life Insurers, Washington, told regulators that the proposed schedule is aggressive since work would probably not begin until the end of September. He suggested that companies on the list should be told as soon as possible so that they could be ready if they are asked to participate in the test. If the test runs into 2011, he continued, the first three months will probably not produce results because companies will be preparing their annual filings. The project could spill over into May or June, he added.

Friday, August 13, 2010

Death of Larry Gorski, Retired Illinois Regulator, Announced

The death of Larry Gorski, a former Illinois regulator and a life actuary, was announced at the start of the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

Gorski died on May 12 of a heart attack. He retired in 2002 from the Illinois Department and consulted afterward.

The announcement was made by Donna Claire representing the American Academy of Actuaries, Washington, during the opening of the Life & Health Actuarial Task Force. Gorski was an integral part of LHATF and other NAIC working groups for many years. He was also awarded the NAIC’s Robert Dineen award for outstanding service as a regulator by the NAIC.

Claire noted that Gorski was also a teacher who taught disadvantaged children and was an amateur astronomer.

After her remarks, LHATF had a moment of silence for Gorski.

NCOIL's Damron Announces Beneficiaries' Bill of Rights

National Conference of Insurance Legislators (NCOIL) President Rep. Robert R. Damron (KY) has released a “Beneficiaries’ Bill of Rights” draft to “ensure strong consumer protections and clear disclosures about retained asset accounts (RAAs.)

Damron wants NCOIL to provide guidance to the 44 states that NCOIL says does not regulate such accounts.

The release of the draft document comes days before state insurance regulators at the National Association of Insurance Commissioners, Kansas City, Mo., prepare to review the issue at its summer national meeting.

Damron asserts that “The model bill guarantees that life insurance consumers and beneficiaries will be fully protected during their greatest times of need. Our model would forbid insurers from using RAAs as a default method of paying death benefits and require that beneficiaries opt in to allow use of such accounts. The legislation would mandate that insurers using RAAs provide clear and comprehensive disclosure about beneficiaries’ policy options and would require the specific disclosure that beneficiaries can write one single check to access the entire death benefit.”

The Beneficiaries’ Bill of Rights, developed and sponsored by Rep. Damron, would require insurers to provide beneficiaries a full explanation of the retained-asset account’s features—including whether the monies are guaranteed by the Federal Deposit Insurance Corporation (FDIC) or by a state guaranty fund. It would also require insurers to disclose to beneficiaries the method used to determine the interest rate being paid under the RAA.

The draft will receive additional discussion at NCOIL’s Life Insurance & Financial Planning Committee on Nov. 19 during the Nov. 18-21 NCOIL Annual Meeting in Austin, Texas.

Tuesday, August 10, 2010

NAIC to Examine Retained Asset Accounts

The National Association of Insurance Commissioners, Kansas City, Mo., will formally establish at its upcoming meeting in Seattle a special working group to examine a life insurance claims settlement practice involving the use of retained asset accounts (RAA). This effort will specifically include a focus on consumer disclosure issues. The working group will be comprised of members of the Life Insurance and Annuities Committee and the Market Regulation and Consumer Affairs Committee.

The working group will hold its first meeting at the NAIC Summer National Meeting in Seattle on Sunday, Aug. 15. The working group will be co-chaired by Roger Sevigny, NAIC immediate past president and New Hampshire insurance commissioner and Thomas R. Sullivan, NAIC Life Insurance and Annuities Committee chair and Connecticut insurance commissioner.

“We want consumers to have as many choices as possible in how they receive their claims payments, but we also want to make certain the terms of those payments are fully disclosed in language that is clear and easy to understand,” said Jane L. Cline, NAIC President and West Virginia insurance commissioner.

In addition to the joint working group, regulators working through the Financial Condition Committee will be considering enhancements to the reporting requirements for life insurance products.

Refined Underwriting Seeks Holistic Approach

A new “holistic” approach to medical underwriting at the individual life division with Hartford Life, will make it possible for as many as 25 percent of applicants to be considered for lower life insurance rates, according to Robert Pokorski, M.D., chief medical strategist in the insurer’s Woodbury, Minn., location.

Pokorski compares it to using a “fine scalpel” to get a better read on how medical conditions will actually affect the health of a candidate for insurance.

The refined debit/credit system tallies medical risks but then adds back factors that might diminish those risks, producing a lower tally. For instance, he notes that there can be a 30-50 percent difference in people of the same characteristics who exercise and those who don’t. Those who exercise witness increased cardio strength and a decrease of muscle loss, Pokorski says. And, he distinguishes between chronological age and artery age, noting that “one is only as old as one’s arteries.”

But, he also says that as a person ages, the predictive ability changes as well and age becomes the overwhelming risk. For instance, he says that the blood pressure of younger applicants is more predictive than at older ages where any number of factors may contribute to high blood pressure. Another example Pokorski offers is called the “obesity paradox.” The paradox is that as one reaches 65 and beyond obesity is less of a health factor than for the pre-65 individual.

Wednesday, August 4, 2010

ACLI Cites Consumer Benefits of Retained Asset Accounts; Legislators Call for Disclosure

The American Council of Life Insurers, Washington, says that retained asset accounts do provide value to grieving beneficiaries and that their full value needs to be explained.

Toward that end, ACLI held a press briefing this morning. The effort to present more information on the subject occurred just days before state insurance regulators will take up the issue during the summer national meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

The issue is a particularly emotional one because it involves death, money and in a number of cases, the families of deceased enlisted military service members.

It also comes as state insurance legislators represented by the National Conference of Insurance Legislators, Troy, N.Y., are calling for more transparency and disclosure and Sen. Charles Schumer, D-N.Y., is preparing legislation to address the issue. And, New York Attorney General Andrew Cuomo is looking into the matter, issuing subpoenas to life insurers to determine whether any deliberate or inadvertent wrongdoing is involved.

During the ACLI briefing, Paul Graham, ACLI senior vice president-insurance regulation and chief actuary emphasized the accounts’ safety and emphasized that the spreads between what insurers are paying in interest on the accounts and what they are receiving on the deposited monies in their general accounts is not “gouging.”

The reason, he explained, is that some assets that are being held in the general account are very long-tailed assets that receive more interest because of the greater risk of tying up money for a longer period of time. Retained asset accounts are not long-term but rather short-term liabilities that require a match with short-term assets, Graham adds. Short-term assets are earning interest of 0.25% to 0.5%, not 5-6% received for 30-year bonds, he continued.

So, the spreads on retained asset accounts are actually very small, Graham maintained. The length of time that retained asset accounts are open range from 30-120 days, he added. Graham said that he knows through anecdotal accounts from companies and from years spent working at an insurance company.

In response to an inquiry on whether research has been conducted to determine the average length of time a retained asset account is held, Jack Dolan, ACLI spokesperson, said that the ACLI had not conducted any survey on the issue but anecdotal information from companies suggests that up to 90 percent is held for a year or less.

Graham also noted that retained assets are safe because they are covered by guaranty funds in the event of an insurer insolvency. In fact, he said, the guaranty funds would cover $300,000 while the FDIC coverage is $250,000. And, according to Graham, while the accounts have a check book feature that allows withdrawal at any time up to the amount of the available death benefit, they do not allow deposits so they are not considered bank accounts.

Graham also pointed out a 1994 model bulletin issued by the NAIC which lays out suggested disclosures including interest rates and tax implications.

When asked whether the ACLI had a conversation with Schumer, Kim Dorgan, ACLI senior executive vice president of public policy, said that the ACLI had spoken with the senator’s staff and that it has not seen legislation at this point.

NCOIL also issued a statement on the issue. Its President, Rep. Robert Damron, D-Nicholasville, Ky., stated that “NCOIL wants to make certain that complete and proper disclosure, transparency and accountability are in place and that beneficiaries are fully informed—in bold type and in layman’s language—of their options prior to such a tragic and life-altering event. NCOIL has grave concerns and awaits with extreme interest the outcome of current probes, including Veteran Administration and New York Attorney General investigations.”

He continued, “…state legislators want to guarantee that survivors are informed of options up front so that they can decide what they want to do with their death benefits. Though these accounts may have existed for decades, we have learned during this recent financial crisis that we can not always take accepted practices at their face value and that even time-honored customs can be like minefields—embedded with danger.”

“What is needed,” Rep. Damron continued, “is a model (a Beneficiaries Bill of Rights) to guide the remaining 44 states and other jurisdictions through these minefields. An NCOIL model could explore, among other things, the benefit, as proposed by Pennsylvania Commissioner Joel Ario, of forbidding insurance companies from using retained-asset accounts as a default method of paying a death benefit.”

Damron adds that “NCOIL is already working on a model disclosure law for its Annual Meeting that requires insurers to notify policy owners of their rights and options before they lapse or surrender their life insurance policy. The NCOIL Annual Meeting will be held in Austin, Texas, on November 17 through 21.”