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Product Drafting & Filing

Goodbye underwriting?

by Suzanne Seay

We received a comment on an application from a New York reviewer recently that required us to remove a medical underwriting question entirely, based on the statute that prohibits racial discrimination in insurance under section 2606. The question asked if the applicant had been diagnosed with or treated for sickle cell anemia. We assume the question was disallowed because sickle cell disease disproportionately affects people of African descent.

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 The comment got me thinking about race and disease. I’m no expert, but it seems that many diseases affect one race or ethnicity more than another. A recent article in the New York Times (Sickle Cell Disease Still Tends to Be Overlooked) was pointing to the disparities in funding, research, and national focus on sickle cell, compared to cystic fibrosis. Cystic fibrosis mostly affects Caucasian people. There’s more money for, more drugs for, and more articles about cystic fibrosis. Lots more. And a lot fewer Americans are affected by it than by sickle cell disease.

 I support addressing these disparities and focusing more attention on sickle cell. On the other hand, forcing insurers to stop underwriting for sickle cell does not seem like a good idea or the best way to address the clear disparities.

If one race-specific disease is not allowed to be underwritten, wouldn’t it follow that all race-dominant diseases be disallowed? Based on this reasoning, a well-funded cystic fibrosis organization might feel obligated to sue NY to remove cystic fibrosis as a question as well.

 A grass-roots sickle cell group might get inspired to spread the word that anyone with sickle cell disease can buy life insurance in NY, because insurers are not allowed to ask applicants if they have it. This would be good for the families of people with sickle cell, but would probably bring up solvency issues for NY insurers, which is bad for everyone. A plaintiff’s attorney might think this new position taken by NY means that in-force policies should be adjusted to account for this discrimination. And what about death benefits already paid on lives that were based on this discrimination?

 And depending on how many diseases or conditions can be considered to occur much more frequently in one race than another, there might not be enough diseases left to underwrite policies effectively. What is the standard for much more frequently? Does there need to be a genetic element to it? Is that what section 2606 says? What if there is a disproportionate impact on one race or ethnic group, and there is also a lifestyle or behavioral component?

 I fully support anti-discrimination efforts, particularly in these times where racial and ethnic hatred seem to be on the rise. But I don’t believe removing a disease (which has significant mortality impact) from insurance applications is the route to making a difference.

Successful LHCA Meeting in Portland, OR

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I am sitting in the Delta Sky Club in Portland, OR after a great LHCA meeting here.  I have had really positive experiences at LHCA meetings and some that are not so great. The meetings tend to be small, which is a great thing if the people there are excited to both ask questions and share information. This was one of those. The meetings that are not as good are the ones where the people in attendance don’t get up to the mic and share. If there are only a couple of people answering all the questions and many questions with minimal input, it is hard to feel great about the time spent. This meeting was the kind that makes it more than worthwhile to be there. In our office we have some new staff that are really talented and excited about the work and I see that we are not alone- the new attendees at this LHCA meeting shared that excitement and passion for the work we do. I am going home upbeat and invigorated to keep doing the work! 

I presented on NY’s Reg 187 as it relates to life insurance.  There were fabulous questions and comments about how the various company’s implementation efforts are going. I got great feedback on the presentation and that is always nice to hear.  The slides are being made available to LHCA attendees and are posted in our Standard of Care Center for members’ reference.  

My next presentation on Reg 187 will be at AICP’s E-day in Springfield, MA on June 12. That one will focus on the intersections and conflicts between Reg 187, Reg 210 and Reg 60.  I am sure that, too, will be a lively discussion and I am really looking forward to it.  I hope to see you there.  Of course, that deck will also be available for members at education.currincompliance.com in the Standard of Care Center.  

- Cailie

“1035 exchanges are about to get easier. Is that a good thing?”

This title is not original. It is the title of an article written by Greg Iacurci in InvestmentNews’ January 21, 2019 edition. It is an interesting piece about the effort to use technology to speed up the 1035 annuity-to-annuity transfer on a tax-free basis. Whenever I see 1035, I think replacement and when I think replacement, I think about Regulation 60 in NY. When I read this article, I kept thinking how likely it is to lead to Reg 60 violations and fines.

While not mentioned in the article, I am hopeful that those working on this streamlining effort are familiar with Reg 60 and its mandates. The article states “Annuity products are often derided as being expensive, complicated products, a criticism that’s compounded by cumbersome industry infrastructure that often creates a month-long exchange process. Technology can reduce the time line substantially, executives said, likely to within a week, start to finish.” That does not appear to be enough for all that is required by Reg 60.

Sheryl Moore, CEO of Moore Market Intelligence does point out that it is possible that “more bad actors would get missed” due to the streamlined process, and that is certainly true, but my concern is a compliance one. I do not see how it will be possible to comply with the disclosure requirements of Reg 60 within that process. So perhaps NY is outside the scope of these efforts? Perhaps once the rest of the country has successfully expedited the replacement process, pressure can be brought to bear on the NY DFS to revise Reg 60 to increase the speed of these transactions.

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However, that seems a long shot given recent experience with Reg 60 procedures filings. In most cases, if not all, an expedited process for replacements requires revisions to a company’s DFS-filed procedures. Those filings are reviewed in granular detail and changes are often requested along with every screen shot of an electronic process. If changes are also required to the application to accommodate a new process, the slowdown at DFS is dramatically increased. Both the policy form reviewers and Reg 60 reviewers hold these types of changes to an extremely rigorous scope of review, far in excess of anything that exists in the review of paper processes. The chance that 1035 exchanges will get easier in NY seems remote.

Disclosure Requirements for Non-illustrated Products

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There often is a bit of confusion concerning the disclosure requirements for non-illustrated products.

This requirement comes in part from NY Section 3209. This section calls for preliminary information (see 3209(d) for requirements) to be provided at or before the time of application. Then a policy summary (see 3209(e) for requirements) is required at or before the time of policy delivery.

However, 3209(l) then goes on to say:

‘(l) An insurer of any life insurance policy or annuity contract subject to this section shall notify the superintendent whether its policies or contract forms have been or will be marketed with or without an illustration.  

For those policies and contracts marketed with an illustration which complies with the regulations promulgated pursuant to subsection (k) of this section, no preliminary information or policy summary shall be required.

For those policies that are not marketed with an illustration, the preliminary information and policy summary shall be provided pursuant to the provisions of this section.’

Now, here’s where things get messy for non-illustrated products. Preliminary Information & the Policy Summary must be provided. These include projections on a current basis. But NY Regulation 74 indicates that any depiction of non-guaranteed elements to be an illustration. But the product is supposed to be non-illustrated. And now we are going around in the dreaded compliance circle.

To allow for non-illustrated products to exist in NY, the Department has taken the position that as long as the Preliminary Information & the Policy Summary show only the non-guaranteed elements required by 3209 (and 53-2.1 & 53-22 for UL type policies) then these would not be considered illustrations within the meaning of Regulation 74.

Again, a bit messy.

Confused about designing annuities in NY?

If the answer is yes, then our Demystifying NYS Annuity Nonforfeiture course is your go-to source. This course will teach you everything you need to know about NYS nonforfeiture law and what you need to do to design a product that complies.

This course, authored by Tom Hartman, Senior Compliance Actuary (formerly with NYSDFS), clarifies the requirements in detail so you know exactly which product designs will and will not work.

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Download this free white paper to learn some basic and common drafting issues.

If you would like more information about the Demystifying NYS Annuity Nonforfeiture course, please email Glenda Bean or call her directly at (518) 512-0172.