What the heck is going on in NY? Cailie A. Currin, President Currin Compliance Services, Inc. AICP E-day 2017, Session 9 May 12, 2017

Transcription

1 What the heck is going on in NY? Cailie A. Currin, President Currin Compliance Services, Inc. AICP E-day 2017, Session 9 May 12, 2017

2 Developments Proposed Regulation 210 Circular Letter 1 of 2017 Unsuitable Deferred to Immediate Annuities Regulation 74 revisions

3 PROPOSED REGULATION 210

4 Status: Proposed Regulation 210 Life Insurance and Annuity Non-Guaranteed Elements Filed with Secretary of State: 11/15/2016 Published in State Register: 11/30/2016 Public comment period expired: 1/17/2017 No official word since comment period expired Unofficial coming soon

5 Proposed Regulation 210 Purpose(s): Set standards for the determination and adjustment of nonguaranteed elements on life and annuity products issued for delivery in NY. Make sure that policy forms do not contain misleading provisions on the crediting on non-guaranteed amounts or the deduction of non-guaranteed charges. Make sure that the issuance of policy forms is not prejudicial to the interests of owners. Make sure that non-guaranteed element provisions are not unjust, unfair, inequitable.

6 Contravention Deemed to be an unfair method of competition Or unfair and deceptive act and practice in the conduct of the business of insurance in NY Shall be deemed a trade practice constituting a determined violation These are statutory violations

7 Non-Guaranteed Elements Not defined in insurance law Additional amounts is used in 4232 but not defined Annuities: (a)(2) No such amount shall be guaranteed or credited except upon (i) reasonable assumptions as to investment income, mortality, and expenses; (ii) a basis equitable to all contract holders of a given class; and (iii) written criteria approved by the board of directors of the company or a committee thereof. Life (b)(2) similar persistency, declaration and prospective only

8 New Definition 48.1 (k) Non-guaranteed element means any element within a policy provision other than an exempt policy provision that may be changed at the insurer s discretion without the consent or request of the policy owner and that affects the policy charges or benefits. Nonguaranteed element includes indeterminate premium policy rates, expense and benefit charge rates, interest crediting rates, cost of insurance rates, and equity index participation rates, but shall not include elements not at the insurer s discretion, such as the pass-through of variable fund returns.

9 Some Key Elements of Propsoed Reg 210 Insurers must establish board-approved criteria. Policies have to be assigned into classes of policies New definition of Class: all policies with similar expectations as to anticipated experience factors that are grouped together for the purpose of determining non-guaranteed elements. No unfair discrimination within these classes. When adjusting the non-guaranteed elements on in-force policies, no increase to profit margins at any duration is permitted. Disclosure Owners must get current scale of non-guaranteed elements no later than at policy issue. Can be in policy, application, illustration or special disclosure form.

10 Some Key Elements of Proposed Reg 210 (Cont) Specific policy form disclosures: Maximum period between reviews of non-guaranteed elements Guaranteed elements and method used to calculate policy values Except as otherwise provided, non-guaranteed elements accrue and must be applied each year during the policy period Statement on the policy specifications page regarding nonguaranteed elements

11 Some Key Elements of Proposed Reg 210 (cont) At least 60 days prior to any change, disclosure must be provided using policy terminology. Must include a prominent description of the nature of the change and state that it is adverse or the conditions under which it would be adverse. Form filings must include: Date the board approved criteria for non-guaranteed elements. An actuarial memorandum with very specific elements.

12 Some of the Concerns Annuity Products Regulation of both initial and redeterminationsconcern is the latter Including group and variable products Ambiguity regarding extraterritoriality Apparent requirement to re-file forms to comply Disclosure would reveal pricing information to consumers ASOPs should apply rather than new DFS standard

13 What about? Classes and Discrimination? Regulation of rates/profit for the first time on the life/annuity side?

14 Issued: January 26, 2017 CIRCULAR LETTER 1 (2017)

15 Right to Contest Right to Rescind Some insurers have asserted a right to contest a life insurance claim based solely on the fact that the insured s death occurred within two years of the policy s date of issue. Some insurers also have asserted a right to rescind the life insurance policy after the insured s death when the insurer cannot or does not obtain access to the deceased insured s medical records.

16 Unfair Claims Settlement Practices During the Contestability Period Section 3203(a)(3) provides for inconstability period: no more than 2 years during the life of the insured. Section 3105 addresses representations by the insured. (d) defines materiality of misrepresentations and states that in an action to rescind a contract or to recover on a contract the burden of proof is on the insurer.

17 Impermissibly placing burden on beneficiary These insurers impermissibly have been placing the burden on the beneficiary to obtain the deceased insured s medical records in order to assist the insurer in pursuing a claim investigation so that the insurer may determine whether there was a misrepresentation in the first place. These insurers appear to be using these tactics to withhold claim payments under the policy.

18 Problem Beneficiary may not have a right to obtain medical records. Beneficiary may not elect to assist and provide access.

19 Good Faith Section 2601(a)(4) An insurer must attempt in good faith to effectuate prompt, fair and equitable claim settlements. Insurers are advised that any business practice by an insurer that, absent any evidence of a material misrepresentation, requires a beneficiary to furnish claim information, including medical records or other claim information about the insured, other than proof of death in order to receive the death benefits, will be deemed by the Superintendent to be unfair.

20 Impact: When there is a death during the contestable period, the death benefit must be paid promptly an insurer cannot unilaterally decide not to pay even if there is not actual proof of a material misrepresentation. An action to rescind can be started, but the insurer can t decide not to pay just because the death was in the contestable period.

21 Conclusion: The failure of a beneficiary to provide access to medical records is not proof of a material misrepresentation. The inability of a beneficiary to provide access to medical records is not proof of a material misrepresentation.

22 Market Conduct Profile 2016 Due June 1, 2017 Included a new question relating to procedures for processing contestable claims

23 Issued December 8, 2016 CIRCULAR LETTER 7 (2016)

24 Unsuitable Deferred-to-Immediate Annuity Issue: Replacements Section 4223 requires a betterment of rates provision guaranteed purchase rates that include a mortality table and interest rate. Producers often recommend replacement of deferred annuities with immediate annuities. Often the purchase rates in older deferred contracts are significantly more advantageous than in current immediate annuities.

25 To be suitable, must consider: 1. The income options under the deferred annuity contract (annuitization as well as lifetime income) and the proposed income annuity contract; and 2. The periodic income available under the selected income option under both contracts. (if not available, use closest.)

26 Reg 60 forms: In the Remarks section the producer/insurer must include: 1. Why immediate annuity is more suitable 2. Why the deferred annuity offers advantages over the immediate annuity. The documentation should include same considerations as for suitability.

27 Betterment of Rates With this requirement, insurers should, regardless of whether the question arises in the context of a replacement or not, have a procedure to ensure consumers receive the highest amount of income available when they request annuitization of an inforce deferred annuity contract.

28 Conclusion: In accordance with the rules in the two regulations, producers and insurers should make every effort to ensure that consumers receive the greatest amount of income available to them under any existing or proposed annuity contract. (Emphasis in original)

29 Market Conduct Profile 2016 Due June 1, 2017 Included a request for additional information relating to immediate annuity replacements as part of question 5.

30 Life and Annuity Cost Disclosures & Sales Illustrations REGULATION 74

31 Original Changes included: 1. Early warning for UL & Comp Life when it looks like it's going to fall apart. Use ten year look forward at current rates. 2. Additional "at issue" disclosure of UL concerning its non-guaranteed nature. 3 Address index UL illustration issues, similar, but stricter than NAIC on assumptions.

32 Original Changes included: (Cont) 4. Address a fundamental disciplined current scale issue as it is used to produce illustrations. Existing problem is even worse when interest rates are falling, the company could use their current portfolio rate for the life of the contract, e.g. Portfolio earning 6.00%, New Money at 4.00%. The company shouldn't be illustrating a product as if it will continue to earn 6.00% forever into the future. Applies to both Life & Annuity illustrations.

33 Original Changes included: (Cont) 5. Doesn't allow loans to be shown in the basic illustration. Can be in a supplemental illustration. Restricts showing loan illustrations where one ends up better off by borrowing. 6. Requires disclosure on the cost of modal premiums in terms of an "APR" approach. 7. Makes electronic delivery more clearly permitted.

34 OTHER NY DEVELOPMENTS

35 Principles-Based Reserving DFS needs enabling legislation to discuss a regulation. First bill was considered too broad and vague. Did not refer to either PBR or the NAIC valuation manual. Revised bill is being floated for feedback. It does reference both PBR and NAIC valuation manual, but it allows circumstances in which the Superintendent can deviate from the valuation manual.

36 2017 CSO Mortality Table Regulations 147 and 179, revised to allow use of 2017 CSO. To be published in NYS Register on May 17 th. Effective immediately. Permissive until 1/1/2020, then mandatory. Form and actuarial filing guidance is on website. If table is referenced in the policy form, a new filing is required. If table is not referenced in the policy form, a letter must be submitted with company s intent. Subject should be: Election of 2017 CSO with revised actuarial memo if original memo included reference(s) to the table.

37 Questions?

38 Thank you!