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NY Proposed Regulation 210: Life Insurance and Annuity Non-Guaranteed Elements - Part I

As many readers are probably aware, on November 17, 2016, the New York State Department of Financial Services (DFS) announced that proposed Regulation 210 would be filed with the Department of State on November 30. This is our first posting in a series on this proposed regulation. Be sure to check back for additional analysis or contact Cailie Currin at ccurrin@currincompliance.com

According to the DFS press website announcement: “The proposed regulation, which provides DFS the opportunity to review increases prior to implementation, requires life insurers to notify DFS at least 120 days prior to an adverse change in non-guaranteed elements of an in-force life insurance or annuity policy. New York Insurance Law prohibits life insurers from changing non-guaranteed elements in a discriminatory way for members of the same class of policyholders. Only certain enumerated factors, which do not include profit, can be considered when seeking to change non-guaranteed elements.” As is clear from this statement there are many important issues addressed in this relatively short regulation. We will have additional discussion on other pieces of this regulation in coming posts. 

We start today with new policy form content requirements established with this proposal.

Section 48.3(b) has several new policy form content requirements.

If this regulation is finalized with this requirement intact, we recommend filing all policy forms that are subject to the regulation for full prior approval. We believe the risk of assuming what language DFS will deem sufficient to satisfy these new requirements will be high on a certified filing for some time. Until we know through experience what is acceptable and what is not, we recommend filing on a full prior approval basis.   

Under the regulation, as proposed, the policy form must:

  1. State the maximum period between reviews of the non-guaranteed elements.
     
  2. State all guaranteed elements, and there must be a statement of the method the insurer uses to calculate actual policy values.
     
  3. Unless the insurance law provides otherwise, each form must state that “when the policy provides for non-guaranteed elements during any period, any non-guaranteed elements will accrue and be applied for each year during the period”. (Emphasis added.)
     
  4. To the extent applicable, the specifications page must state that “additional amounts are not guaranteed and the insurer has the right to change the amount of interest credited to the policy; the amount of cost of insurance or other expense charges deducted under the policy that may require more premium to be paid than was illustrated; and that the cash values and policy benefits may be less than those illustrated.”

    Note that this language is almost identical to what appears in §3203(a)(16) of the insurance law. It expands the mandate, especially by including annuity contracts. Many of us have had the experience of DFS reviewers requiring the exact language of this section even when it does not appear to apply exactly, so it will be interesting to see how much latitude is given. Again, annuities may be the biggest challenge in this regard since they are not as often illustrated.
     
  5. State the experience factor that the company uses to determine any “readjustment in each non-guaranteed element.”

Looking back to the beginning of the proposed regulation, §48.0(b) states that a "contravention” of the regulation is considered to be an unfair method of competition or an unfair or deceptive act under Article 24 of the Insurance Law. This article is not generally applied to policy form language errors, making yet another argument for filing products subject to this proposed regulation for full prior approval rather than taking advantage of the certified process.

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