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Guidance from NY: Filing 2017 CSO Mortality Table

As you probably know by now, on May 2, 2017, NY released guidance on the filing requirements for insurers and fraternal benefit societies wanting to use the 2017 CSO mortality table. The Department began accepting submissions of policy forms referencing the 2017 CSO Table on May 17th, 2017. It appears that adoption is, not surprisingly, somewhat slow, so we thought it might make sense to provide a bit of a reminder of these rules:

Below is a summary of when the 2017 CSO table can and must be used for reserve and nonforfeiture calculations as well as what to do for previously approved forms that use the 2001 CSO Table. Note that in addition to the information listed here, policy form submissions must comply with all usual and substantive requirements set forth in the product outline applicable to the product type being submitted.

Key Dates for Reserve and Nonforfeiture Calculations

  • May use for reserve and nonforfeiture calculations for policies issued on or after 1/1/2017
  • Must use for policies issued on or after 1/1/2020

Previously Approved Form: References 2001 CSO Table

A change in the mortality basis - that is, a change in the underlying assumptions on consumer life expectancies that is used to base policy costs and project payouts - to the 2017 CSO Table cannot be accomplished without filing a new version of the policy form for approval.

  • The new version of the policy form will need a unique form number.
  • The previously approved forms that do not themselves reference the table (e.g., application) may be used with the new version of the policy form without needing to re-file. Only those forms that themselves reference the mortality table must be re-filed.
    • The filing description should identify previously approved forms that will be used with the policy form submitted for approval. For example, the application referenced in the bullet above.

Previously Approved Form: Does Not Reference 2001 CSO Table

For example, a term life insurance with no cash value and company wishes to change the mortality basis, the company must:

  • Send a letter - NOTE: it’s our understanding that this means either a physical letter or entering a letter into the Filing Description in SERFF - and supporting material to the Dept. stating intentions to revise the table and, if applicable, indicate whether or not change is retroactive for all policies issued in 2017.
    • When submitting via SERFF, select the “Other” filing mode and enter an Explanation of “Election of 2017 CSO.”
    • In SERFF, use the Filing Description field to enter the letter. If you also include an actual letter be sure to check and double check that the filing description field and the uploaded document are consistent since version control can become an issue if choosing to repeat the information in multiple places.
  • Note that the reserve and nonforfeiture basis must be the same.
  • A certification of nonforfeiture compliance must be included with the election.
  • If the 2001 CSO Mortality Table was only mentioned in the actuarial memo accompanying the original policy form filing, then an updated actuarial memo must accompany the election submission.
  • The election must be received by 12/31/17 in order to elect a retroactive change in the mortality basis for year-end 2017.
  • The 2017 CSO Table may only be used for policies issued on or after 1/1/17 and then only if the company files an actuarial opinion in the annual statement based on asset adequacy analysis as specified in 95.8 of Reg. 126. See 100.5(d) of Reg. 179 for more details.

Send election and supporting materials to William Carmello, Chief Actuary via SERFF or the address below.

  • If using SERFF, the “Other” filing mode should be selected with an Explanation of “Election of 2017 CSO.”
  • Address for Submissions not via SERFF:

New York State Department of Financial Services
Life Bureau – 19th Floor
One Commerce Plaza
Albany, New York 12557

Congratulations to . . .

. . . our very own Sarah Huffer and Machael Heise for being elected as AICP leaders for 2017-2018.

aicp-reg2.jpg

Sarah will continue as treasurer for the New England Chapter and Machael is the newly elected treasurer for the Western Chapter.

We are very proud to have these two woman on our own CCS team as well as representing AICP in their elected positions.

Same-Same, but Different . . . Referrals vs. Rebate

Have you ever been to a website that offers you a deal - a coupon code, a gift card - just for signing up for their email list? Or maybe you’ve made a purchase from your favorite online retailer, and as a thank you, you get a discount on your next purchase, as well as a coupon to send to your BFF? Everyone likes a little freebie and to feel appreciated and rewarding customers is one of the ways brands build loyalty. In exchange for a small gift, the brand not only has happy customers, they get free PR as well. Everybody wins!

Well what about in the insurance space? After all, the industry knows that it must continue to modernize in order to stay competitive as consumer shopping trends shift. Whether you’re offering a thank you in-person or online, it’s worth looking into the differences between a referral and a rebate, and what some potential compliance issues are for both.

Definitions

Let’s start with some general definitions. Keep in mind I’m using my own broad descriptions here, since each state's specific language may vary. TIP: If you’re looking for state specific information, a great starting place is the state’s unfair trade practices, as well as any compensation laws.

Referral: an act of referring someone or something for consultation, review, or further action

Rebate: returning a portion of the premium or the agent’s/broker’s commission on the premium to the insured, or other inducements to place business

Potential Issues

By “potential issues” I mean “practices that may end up causing compliance problems for agents, marketing organizations, agencies, and/or insurers, either from regulators, or possibly in the form of litigation.” While state specifics vary on what is, or isn’t allowed, I want to lay out broad categories under each practice (referrals and rebates) that need compliance attention. Note that rebates and referrals are not the same thing - they’re different! However, they can be related to one another in that you may be considering a referral program that also provides an inducement to the individual who is being referred. Additionally, while state rules regarding referrals often live in the compensation laws, they typically reference a state’s trade practices laws as well, as it’s usually a requirement that the referral fee doesn’t violate a state’s trade practice laws.

First up, let’s talk a little about a referral program; A program in which you compensate existing clients who refer a prospect to you. For this discussion, let’s say a referral means a policyholder provides their insurance agent with a list of three people they think would be a good fit for the insurance services. For many states, compensating an unlicensed individual for a referral is ok, as long as the compensation is a fixed dollar amount and the compensation is not contingent upon the sale of insurance.

The two things to keep in mind when developing a client referral program are content and conditions. Here, I’m focusing specifically on the content of the discussions the referrer is having with the referee and the conditions for obtaining the fee.

I’ll touch on content first. In order to be compensated for the sale, solicitation, and negotiation of insurance, an individual must be licensed. Like I stated above, many states do allow the compensation of an unlicensed person as long as the compensation is a fixed dollar amount and is not dependent upon the purchase of insurance. If the referral program you want to use compensates policyholders for a list of names, the policyholders are not acting as unlicensed agents. Where I believe things become grey, and where I think licensing may become an issue, is when a program functions more like a lead generation service.

For example, if the program is designed so that a policyholder can advertise to the masses, say through their social media accounts or a blog, or by distributing promotional content to their communities, then it may be viewed that a line has been crossed. Depending on what the content of those messages say and what the compensation is, it may no longer be viewed as a simple refer a friend program.

The other issue is if there is a condition that in order to get the referral fee, there must be the purchase of an insurance policy. Most states prohibit requiring a purchase to be made in order to compensate for referrals, so having the actual purchase be a condition of receiving compensation is a violation in those states.

Our recommendation is, if you’re considering using a referral program that offers compensation, do not require business to be placed in order for someone to earn the fee, ensure that the fee doesn’t violate state trade practice laws, and if you’re going to design a program where your policyholders are marketing to the masses on your behalf, understand that you’re taking on more risk than if your program simply is asking policyholders for a list of names.

If you’re using policyholders as a more robust lead generation system, carefully review any messaging you provide so you can confidently explain how those individuals are not participating in the sale, solicitation, and negotiation of insurance. Also consider how the policyholder is being compensated. It’s one thing if they receive a free tchotchke every time a referral meets with an agent, if they start receiving $30 a head, and they are pushing out messaging to 1000 of their closest Facebook friends and family, it may be viewed by regulators as a violation.

How about rebates? Unlike in the case or referral fees, in most states, rebates and inducements are illegal. What exactly constitutes as a rebate or an inducement, and at what point any given threshold is crossed, is where we find quite a bit of variety from state to state. For the answer to that question, you can purchase our 50 State Gifting and Rebating Survey here. To give you an idea of the differences and limits, check out this information provided by NY, as well as this one by Florida. For this blog post, the big takeaway I want you to get, is that there are often many more restrictions on what types of things can be offered, and what the value of those items can be. In general, cash or cash equivalents, even for small amounts of money, can be a violation of a state’s laws.

Our recommendation is, if you’re going to offer anything to prospects or clients that isn’t specifically stated in the contract, review your state unfair trade practice laws to ensure you’re not offering an illegal inducement or rebate. If it’s still unclear if your offer is a violation or not, ask yourself this question, “Is this offer something that would induce someone to enter into an insurance contract?” This is obviously a judgement call, but this is the type of questioning a regulator would likely apply when evaluating an inducement. You should be prepared to explain why what you’re offering isn’t impacting someone’s decision to purchase insurance.

As you work to reward customers and spread awareness of your products and company, be sure to review your plans with a fine-toothed comb, as compliance issues can easily get tangled together, and result in unexpected and multiple types of compliance - and potentially litigation - exposure.

Searching for Lost Policies

Lost Policies

I believe I spend way too much time searching for things: my wallet, my reading glasses, an overdue library book, my 14-year-old’s soccer knee pads, my 16-year-old’s mouth guard for lacrosse, and the like. But it appears that the NY Department of Financial Services (DFS) thinks life insurers doing business in the state should be devoting more time and more resources to searching for one thing: lost insurance policies.

Like many states, DFS is working on a project that will coordinate its Lost Policy Finder Service with the NAIC’s Life Insurance Policy Locator Service. While insurers currently volunteer to participate in NAIC’s service, an insurer’s participation in the NY service is not voluntary, it’s mandatory.

Under the current system, when a request comes into NY’s Lost Policy Finder, NY domestics are required to search their electronic records of all policies, no matter the state it was issued in. Insurers domiciled outside of NY are required to search only those policies, contracts and certificates issued in NY. Once the coordination with the NAIC is complete, there could be a significant increase in NY requests, because all requests going to the NAIC service will come to NY also.

James Regalbuto, NY’s deputy superintendent for life insurance, said at a recent LICONY forum that the NAIC has done more promotion of its locator service to the general public and it seems that more people know about the NAIC service than the NY service. Because participation by insurers in NY’s service is compulsory, he expects that more requests will result in the identification of a greater number of lost policies.

It’s not yet clear how often NAIC-received requests will be pushed out to insurers licensed in NY, but it will probably be done daily or weekly. Insurers have 30 days to respond if they maintain their own records, or 45 days if they contract with a third-party to maintain records. If an insurer participates in the NAIC service, it does not have to search again when NY sends the NAIC-received requests.

Regalbuto said the market conduct fines issued by DFS have been driven up lately because of companies’ non-compliance with §3240, NY’s Unclaimed Benefits statute, which includes law relating to the Lost Policy Finder.

There is still an outstanding question of how NY wants to handle all of the requests that have come into the NAIC over the past year or so, since the NAIC’s service was established, Regalbuto indicated in response to a specific question that he is not willing to ignore all of the previous requests, but has not yet decided how insurers will be required to address them.

Another upcoming change to coordinate with the NAIC service is that NY will no longer require a certified copy of the death certificate to accompany a request, as the NAIC does not require one. As I was writing this article, I decided to submit a policy locator request on the NAIC website for my father, who passed away in March last year. I would not have done so if I’d been required to submit a death certificate. 

New York Paid Family Leave Update

New York Paid Family Leave Update

I have started to see things creep up in my personal facebook feed about paid family leave. There has been local news coverage this month about the fact that employers can start taking deductions from employee’s wages to cover the premiums. The rate was set by NY Department of Financial Services (DFS) and maxes out at $1.64 per week, which is intended to fully fund the coverage. 

Meanwhile, insurers are still waiting to submit form filings to provide for this coverage. At the LICONY and DFS seminar that was held on July 11, representatives from the Health Bureau stated that they have put ample resources into drafting model language for the program, which they will require to be used. The language is drafted to be a rider that is added to an existing Disability Benefits Law (DBL) policy. The language has also been pre-approved by the Worker’s Compensation Board, which means insurers will only need to submit filings to DFS. At the time of publication, the model language has still not been released, but it was promised to be available soon. Department staff also promised that there will be a checklist that includes detailed filing instructions to aid in these submissions. Given the circumstances, I am hopeful that there will be a very quick turnaround on these filings. 

I am most interested to find out what happens January 1, 2019 after the first year of the program is complete. The rate regulation requires detailed reporting from all insurers and a complete levelling of all experience, categorized by group size. Will it be a loss? Are the premiums adequate?

Technology is The Topic at ACLI Legal and Compliance Meeting

Coeur D’Alene, Idaho

As I traveled back from the beautiful city of Coeur D’Alene, Idaho after the ACLI Legal and Compliance Meeting, I was struck by how the topics have changed recently. At this year’s conference, the DOL rule was certainly present as a topic, but not nearly so much in the foreground as it has been in recent years. Technology, on the other hand, was at least part of every session.

Cybersecurity not only had its own session: it also crept into almost all the others in one way or another. Innovation was equally prominent, as the need to innovate made its way into most conversations. Frustrations with the challenges of regulatory efforts to both allow and restrict innovation were also on many lips.

There were no clear solutions to the challenges posed by these issues, but it was clear that internal legal and compliance efforts, as well as regulatory resources, are being pulled and strained by both. It is an interesting and demanding time. So many more meetings and discussions are to be had as we, collectively as an industry, begin to do more than merely identify the issue, but we continue to dig in and do the work.

Revised Reg 210: Where are we now?

NYDFS Reg 210

On May 24, 2017, DFS posted the revised second version of Regulation 210, Life Insurance and Annuity Non-Guaranteed Elements. The shorter comment period on this version just ended on June 23, 2017.

Some of the significant changes include:

Without question, the most surprising aspect of the latest proposal is that it still applies to annuity contracts, though with some changes in the applicable mandates. In the assessment of public comment, DFS stated:

The Department acknowledges that the problems uncovered over the years have primarily, but not exclusively, involved life insurance and has substantially revised the proposed rules for annuities to limit reporting on annuities to an annual reporting to the Department of adverse changes in non-guaranteed elements that took place in the prior year, as well as the 60-day notice to policyholders of adverse changes in non-guaranteed elements. The Department believes that this reporting is necessary to protect annuitants’ interest.

Another type of product that many thought should be excluded from Reg 210 is group products, especially when they are not subject to individual standards. Here DFS offered:

The Department narrowed the scope of the regulation with respect to group business but some groups not subject to individual rules are still subject to the regulation if the Department continues to have concerns about fair treatment of the participants. For example, the regulation would still be applicable to certain group annuities subject to ERISA that are not subject to individual standards in which case the insurer would be required to report annually on adverse changes to non-guaranteed elements.

One of the most controversial aspects of this regulation is that for the first time, and with unclear legal authority, DFS regulates insurer profit margins. Changes sought by commenters on the first public draft of the regulation were not made:

The Department believes in order to ensure that changes to non-guaranteed elements are based solely on changes in expected future experience, the profit margin must be fixed. Otherwise, if an insurer may change the profit margin, the various sections of the law requiring reasonable assumptions and equitable treatment of policyholders could easily be violated and bait and switch pricing could occur.

On a related issue – rate regulation – the Department notes that several commenters asserted that advance filing of changes in non-guaranteed elements is “tantamount to rate regulation.” In its assessment, DFS did not specifically address the rate regulation assertion, and instead responded as follows: 

The Department believes prior approval is not necessary to ensure fair treatment of policyholders but advance notice of adverse changes is important because it helps avoid situations where improper changes in non-guaranteed elements results in fines and the need for the insurer to make restitution to harmed policyholders.

This suggests that advance filing may be rate regulation, but it is a better alternative, in the Department’s thinking, than waiting and only seeing those situations that the Department may find after the fact and where there has been a violation of law. It may be that the Department prefers that method of enforcement, but it remains an open issue if, without rate regulation authority, they have that option open to them. I believe we will hear more about this in the future.

A change that reduces filings is the removal of the requirement that board criteria be filed within 30 days of adoption. As the second public version reads the board criteria would fall in §48.4(f) as a record required by the regulation, and so it would need to be provided to the Superintendent upon request.

Another major positive change in this version is that DFS removed the policy form requirements. Several commenters on the first published draft indicated that the result of that version’s mandates would be overly burdensome. This change is very welcome and will make implementation easier than it would have if policy forms had to be filed.

The effective date of the regulation is now set to be 180 days after publication of the final rule. As indicated above, the second comment period ended on June 23rd, so now we wait to see if there will be any additional changes. It always seems likely that changes will be made the second time around – especially when there was active participation in the first. However, perhaps new statements of previous concerns will be persuasive this time around. It is always possible that comments will be raised on the revised language, making them essentially new comments. We will have to see. 

Be sure to take a look at our November 3rd symposium in Hartford, CT; Regulation 210 and NY Issues - A look at solutions and new ways to approach your filings! Space is limited. Register today and get the early bird price.

Inciting Smiles

I don’t know about you, but I find that after I have been looking at the same insurance policy forms for the past several hours, it takes very little to amuse me.

The other day I was humming along, reviewing application forms for individual corporate-owned life insurance, when I saw in the COLI checklist a reference to § 4216, which is one of the most important sections of the NY Insurance Law for the review of group life insurance policies, but one I do not have printed at my desk.

So, acting almost on auto-pilot, I dutifully logged in to Westlaw, entered my search terms of 4216 and New York, hit enter, waited for the results (which always, irritatingly, defaults to case law), clicked on Statutes, waited again, then automatically moved my mouse toward the first hit: Section 4216.

But then, I really smiled. Not quite an LOL, but close.

This statute that came up first on the list was from the Public Health Law, not the Insurance Law.

It read: § 4216 -- Body Stealing.

Of course I had to read the statute, which, fortunately, was only one paragraph. It turns out that removing any part of a dead body without having the authority to do so, from graveyards or vaults or really anywhere, for the purpose of selling it, or dissecting it, or because you’re feeling malicious or wanton, is a class D felony in New York.

As I said, some days it doesn’t take much.

If you’re wondering, the correct cite is §4216 -- Group life insurance; premium requirements; notice of conversion; filing of compensation. It’s 14 pages long. No body parts or felonies are mentioned. I noted that the employee has to be notified if the employer will be the beneficiary of the policy he’s applying for. But now I also know that even if the employee dies, and even if the employer gets the death benefit, the employer is still under no circumstances allowed to steal his body parts.

Off-Topic for a Moment:  Nuclear Regulatory Compliance

Regulatory Insurance Compliance News

As many regular readers know, my father passed away in January after a lengthy battle with Leukemia. He was a nuclear engineer and I knew very little about what he did during my growing up years. I still know very little about what he did, but I do know he was very good at what he did and he was very well respected for what he did. His work was classified. I was raised with the aura of classified information around almost all interactions with my father. Many conversations that seemed innocuous to me turned a corner that led to “I can’t tell you.” It was hard. I think about that often as I listen to all the news around classified information these days. I wonder what my father would have said about it. He was a news junkie and I miss the opportunity to talk to him about all that is going on in today’s national and international politics. But that isn’t what I set out to write about in this post.

I started to write about compliance in the nuclear industry. What? I know. Off topic. I know nothing about the regulation of the nuclear industry, only that it is an industry that I assume is very highly regulated.

Since my father’s death, his mail has been forwarded to my house. Most of what comes is junk mail – now I get his in addition to my own. But also forwarded is his subscription to the trade publication Nuclear News. It comes wrapped in transparent plastic, so I see what it is and I have generally not opened it. But one recent issue caught my attention: Buyer’s Guide 2017. Really? People shop for nuclear supplies from a magazine’s buyer’s guide? Maybe the industry is not so regulated after all. I ripped open the plastic.

The magazine explains it as follows:

This section, beginning on page 35, lists in alphabetical order the various categories of products, materials, and services that are used in the nuclear industry. Exactly 472 categories are given, each with the names of suppliers offering that item.

Advertisers are noted and their entries appear in magenta with the page number on which their ad can be found. All very convenient for the nuclear shopper. 

I decided to test the system. Maybe I did get a little something from my father – he was notorious for his tough but fair design reviews. So, I looked up compliance. The index had a listing for compliance (Compliance Support, Regulatory) and a reference to consultants. The entry for consultants offered no additional guidance, so I noted the code for consultants and flipped to the page where the listings began. Not many consultants advertise in Nuclear News. And not many consultants appear to be primarily regulatory compliance consultants. Most appear to be engineering consultants who advertise, among other skills and qualifications, that they know how to comply with regulatory requirements.

My little diversion into the world of nuclear regulatory compliance was not all that satisfactory. Nor was my experience with the Nuclear News Buyers’ Guide 2017. Perhaps one needs an in-depth understanding of the regulated industry to make sense of such a thing.

Ten years into my business of regulatory compliance for the life insurance industry confirms that a niche is a pretty sweet thing to have. Know the industry you serve, know it well, maintain strong relationships and do the right thing. I think that probably works whether the industry is nuclear power or life insurance. I will stick with life insurance – I am ready to put the Nuclear News Buyers’ Guide 2017 in the recycling bin. I probably won’t open the next issue. 

What’s It Worth?

Rebates, Gifts, Inducements

Have you read LA Advisory Letter 2015-01? Originally issued in 2015, it was revised and reissued in March of 2017. This advisory letter has a lot of information and we recommend that you read it in its entirety (6 pages). That said, we want to draw your attention to a couple of specific elements of this letter.  

In a nutshell, this letter does the following:

  • Reminds insurers, distributors, and producers (note that fraternal benefit societies are exempt from this Advisory Letter) that rebates are prohibited by the Louisiana Unfair Trade Practices Act.
  • Then it distinguishes rebates from typical marketing practices, allowing a certain amount of discretion and common sense to be applied to determine if something violates the rebating laws:

The letter provides a list of things that fall into this category including, but of course not limited to: “giving of tangible goods (tee shirts, caps, pens, calendars, etc.), the giving or purchase of consumables (such as food and beverages, etc.), the provision of continuing education course materials or instruction, and the giving of tickets to sporting, cultural or other charitable events, or the making or giving of charitable donations (including pro bono services) …”

The letter also looks at services that can be offered by an insurer and draws a distinction between those that are “incidental to and closely related to the administration of the insured’s policy,” which the letter advises are not rebates, and those services that are not truly incidental to the contract of insurance. Those services are likely to constitute rebating if the costs are not passed on to the insureds. In both cases, the services are offered and provided to insureds. Examples of those that might be incidental, according to the letter, include risk assessments, claims form preparation, and billing under COBRA. Examples of services that are more likely not to be incidental include COBRA administration that goes beyond billing, legal services, human resource software or services related to employee compensation. When evaluating whether a service might fall into the prohibited category, the key is how close the nexus of the services provided are to the insurance contract. The closer the nexus, the more likely the service is permitted and not rebating. 

So that makes sense, but what about when services are offered to the public? Here the trade practice at issue is not as likely to be rebating and the question is more likely to be whether or not the services constitute an inducement.

Louisiana tells us that it is not rational to interpret “inducement” to mean any and every motivation. That is too broad of an interpretation and to do so would prohibit “common and ordinary business activities where such prohibition bears no reasonable relation to the evils sought to be cured by the Unfair Trade Practices Act.” But clearly there are actions and motivations that do operate as inducements and how do we tell them apart?

The letter includes four factors that the Louisiana Department of Insurance would consider:

  1. Whether the offering of the thing of value is open and obvious to the public. This is important because the starting point of the analysis is basically that we are all free to offer things of value to the public so long as our motivation is not a prohibited one, such as to unlawfully induce the sale of insurance.
  2. Whether the offering is directed primarily to insureds or prospective insureds. This then qualifies the first statement because if an insurer or producer asserts that the offering is to the public, but in fact only insureds or prospective insureds participate in the offering, then it begins to look more like an inducement.
  3. Whether a member of the public can obtain the thing of value on equal terms and through the same means as insureds or prospective insureds. This drills down a little further. If there are insureds and prospective insureds involved, but the public can participate on equal terms, then the argument is that the thing or the service may not be an inducement.
  4. Whether any impediment to access the thing of value exists that is imposed on the public and not equally imposed on an insured or prospective insured. And this is the flip side – another way of saying that the terms are not the same for the public as those for insureds or prospective insureds and again, this looks more like an inducement. For example, if an event is offered and it is free for insureds or prospective insureds, but the general public has to pay for it, it may look like an inducement. However, we then need to return to the beginning of the letter and note that if it is a common and ordinary marketing practice, then it may be acceptable.

The letter repeats that it’s not the spirit of the statute to prohibit any person from “employing marketing practices that are routine, ordinary, and acceptable throughout the broader economy and that do not inhibit or undermine the statutory goals of protecting consumers from discriminatory pricing or insurers from the risk of insolvency.”

Given this, we think LA supports insurers and agents leveraging regular marketing and promotional activities. Keep in mind, each state is different, and not all issue guidance as clear as this. Some states have strict limits that have resulted in significant fines on producers who were found in violation of the unfair trade practices act regarding unlawful rebating and inducements.

For more information on the laws and regulations governing rebates and inducements, we encourage you to check out this 50-state research tool.

Spring Conferences - on the road again!

I have been to three different conferences in three weeks. They show me just how diverse our industry is, while also sharing much in common. The three conferences were organized around three different elements: Geographical Location, Product Type, and Organization Type

Geographical Location: New England Chapter of AICP

On May 12, the New England Chapter of AICP held its Education Day (E-day) at the Nathan Hale Inn in Storrs, CT – right on the UConn campus, which is an unusual type venue for an industry event. It has seemed to me that AICP is getting slightly more P & C focused in the last few years, and that appeared to be true at this event as well. Those of us who focus on life, annuity, and health need to attend these programs and the AICP national conference. This year the national conference is in Seattle – who doesn’t want to go to Seattle? That said, back in Storrs, CT there was lively participation in the two sessions I presented: Managing Compliance Risk and Corporate Governance (With Kathy Donovan of Wolters Kluwer) and New York Developments, where we focused on proposed regulation 210, Circular Letter 1 (2017), deferred to immediate annuity replacements and recent policy form filing experience.

The New England Chapter of AICP is holding a joint meeting with the Mid-Atlantic Chapter in August to meet NYSDFS staff – it is sure to be informative and interesting, so if you are a member and want to join us, feel free to contact me.

Product Type: Group Annuity and Pension Compliance Association (GAPCA)

On May 18th and 19th, GAPCA met in Omaha. Unfortunately, the weather did not cooperate, so I did not do as much exploring of Omaha as I had intended. I was only in Omaha once before and it was also for a conference and I didn’t stray far from the hotel. I love GAPCA conferences and I highly recommend it if you do any group annuity work. I again spoke about developments in NY, however since we were talking about group annuities, this time the developments were primarily of the policy form filing experience type. Many commiserated about experiences of different reviewers providing different reviews. This may be because the group annuity outlines are among the oldest and the most difficult to use. They are organized in a way that does make it easy to determine which applies to what product(s). Perhaps the Life Bureau will reach out to GAPCA for some input when those outlines get picked up for refreshing. GAPCA has tremendous experience to help that effort.

Organization Type: American Fraternal Alliance Spring Symposium

This was the biggest of the conferences I attended and the most different from the typical conferences I attend because it was not limited to compliance. Held in Chicago, the AFA had multiple tracks happening at the same time, so attendees could spend the whole time attending compliance track programming, but they could also pop into a session held by the business operations or investments actuarial tracks. I spoke on cybersecurity from a compliance perspective, not an IT perspective. That said, because of all the different folks that AFA gathered, there were multiple perspectives on the issue and we had a great discussion after we walked through the NY regulation and talked about what might or might not make it into a NY-based NAIC model regulation.

Altogether, these three events reminded me why I love what I do. I met lots of different people in distinct parts of the niche of the industry we occupy. I was able to talk about issues and hear reactions from people who I normally don’t interact with or only communicate with via email or social media. The three weeks I spent at industry events were a bit tiring, but so worth it. Thank you to all the great folks who put these events on – I know it is a lot of work! Thank you to all who spent a few moments with me and shared your wisdom and experience. It is one of the best parts of this work and I value it tremendously.

Rebate, Gift, or Inducement – What Does It Matter?

No doubt everyone likes to get something extra, something for free, or a little treat now and then, right? Who doesn't like a good BOGO (buy one, get one) sale? Or that added incentive to buy big: purchase a $100 gift card, get a $25 gift card for free. Score! No big deal, right?

But if we’re talking about gifts in connection with the sale of insurance or annuity products, it IS a big deal, and one that can land you in hot water with state insurance regulators. Most insurance departments have published regulations that limit what, if anything, an insurance agent or carrier can give to prospective or existing clients as a gift. Some states have what I call a “zero tolerance” for gifts of any kind that are offered as a means to induce a consumer to purchase an insurance product. In these states, their rules generally state that gifts “of any valuable consideration or inducement not specified in the policy” are prohibited.

Other states have similar wording in their regulations, but they still allow gifts up to a certain limit to be provided, with amounts generally in the $5-50 range per consumer, per year. There are outliers, though. For example, the state of Idaho includes this same wording in their regulations, yet has the highest limit of $200 per person, per year. It’s also important to note that some of the states that do allow certain gifts not only have a monetary limit, but only allow the gifts to be given if they are unrelated to and not dependent on the purchase of insurance.

Whether you call it a rebate, a gift, or an inducement, the basic premise of the rule is the same – state insurance regulators want clients on even footing when it comes to the policies they purchase. To pass the rebate test in most states, any benefit must be expressly stated in the insurance or annuity policy, and provided to everyone who purchases the product. This also helps to ensure that consumers are not influenced to purchase a product primarily because of the gift, and that they have a real need for the product itself.

According to the NAIC Unfair Trade Practices model regulations (Model Reg 880-4(H)(1)), “Paying, allowing, giving or offering any of the following, if not specified in the contract, is an unfair method of competition and an unfair or deceptive act:

Rebates of premiums payable on the policy; special favors or advantages in the dividends or other benefits; any valuable consideration or inducement not specified in the policy; giving, selling, purchasing or offering, as an inducement, any stocks, bonds or other securities, any dividends or profits accrued, or anything of value not specified in the policy.”

So, what does this mean, especially for insurance agents? What exactly is a rebate? In some states, a rebate means a gift of value, such as cash, a gift card, a fruit basket, or some other tangible gift or object. Other states, however, may consider it a rebate if an agent holds an insurance seminar and serves a nice meal. The cost of that meal, per person, may need to comply with the states’ rebating limits, or the agent runs the risk of a state enforcement action for violating state laws. The same issue may apply with a client appreciation event, such as wine tasting party, golf outing, or other similar events. To determine if the event is in line with their rules, many states will calculate the cost of the event, including all possible variables, such as food, drink, cost of entertainment, etc., and divide it by the number of attendees.

Insurance companies and agents often conduct business in multiple states, so being familiar with and staying current with each states’ position on rebates is important. Let us do the work for you. Enroll today!

Rebating, Gifting, and Inducements

...how training helps compliance professionals make sense of a gray area.

I’m focusing here on the benefits of training for a specific compliance topic: rebates, gifts, and inducements. Why? Because it’s one of the hardest areas for compliance professionals to get their hands around, especially with any consistency or certainty. (Click here to read more about what training can do for compliance professionals and compliance functions.)

If you’ve spent even a short time working in insurance compliance, then you’ve probably answered the question of “Can we do this?” with “It depends…” This is probably even more true if you’re fielding questions about sales inducements.

While rebating is illegal in most states, there is much less consistency around the threshold of when something becomes a rebate, or how much money can be spent before exceeding limitations.

So, what can a discerning compliance professional do?

  1. Training and education. Learn what rebating is, how it can come up and why it’s problematic. But that’s not all, since it’s not possible to memorize each state’s various rules, what would serve you better is learning a framework to help you evaluate sales inducements. It won’t always mean a quick and easy answer, but having a process gives you clear markers of what to consider and think through before you can make a judgment call if something is allowable or not.
     
  2. Research Surveys. You can compile information about each state, or you can purchase a research survey. Here’s a sample of ours. A couple things to note there. First, researching each state’s rules and regulations is time consuming. The information can be found in various places that takes time to uncover and collect. Second, you’ll need to understand how often the information is updated. If you’re taking the DIY approach, what’s your process for ensuring it’s up to date? If you’ve found information or purchased a research survey, how often is it being updated? If you’re curious, our research survey is actively maintained, and those who have purchased it receive e-mail notification each time we record an update.

If you’re interested in learning more about rebates, gifting, and inducements, take a look at our Webinar replay on our education and training webpage.

Pants on Fire

I don’t lie … generally.

I do try not to share certain facts (and my interpretation of those facts) when it helps smooth a relationship for me to keep quiet; but even this restraint of pen and tongue is difficult for me.

Despite my forthrightness, I found myself feeling (almost) guilty upon reading Delaware’s Universally Applicable Bulletin #1. (That’s a broad net to cast, no?)

In essence, the bulletin reminded everyone that telling lies is illegal and we all can be fined up to $10,000 every time we utter an untruth about insurance in Delaware.

Do I need to be reminded of this? Actually, I think not. Will it help to remind the liars that their lies could have consequences? Maybe, but a bulletin may not be the most effective way to get the point across.

When an insurer gets a hefty fine for something or other, and a state DOI issues a press release announcing the punitive action, our office phone invariably starts to ring. It seems to me that DOIs get the attention of insurers and agents when a fine, or revocation of license, or some other type of punishment is handed down. This is perhaps not the way it should be, but it seems to be the way it works.

The bulletin stated that Delaware had been made aware that “various members of the insurance industry” have responded to complaints about premium rate increases by telling consumers that the Department forced the rates up. The bulletin went on to warn that anyone caught suggesting that the Department is responsible for rate increases would be prosecuted.

I’m thinking that this bulletin would have had more teeth if it ended with a short list of recent prosecutions. Perhaps that announcement is coming soon.