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DFS

“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.

Review

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.

Tom Hartman

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Tom Hartman, formerly a senior actuary with NYSDFS, is now able to work with you at LONG last!

Most, if not all of you know Tom Hartman from his days as a senior actuary with NYSDFS. He had a reputation of doing a tremendous volume of work and doing it well. Tom was always helpful to companies trying to figure out how to comply with some of NY’s byzantine rules and regulations. Guess what? He can do that for you again!

Since he left DFS, all of us – and none more than Tom himself - have been counting the days until he could come out of his basement and work directly with you. More than once he has mused in the two years since leaving DFS while barred from appearing before the Department, that it was hard not to be able to do the things he is best at and has the strongest reputation for, but now he can! 

He has learned about the compact and other states and he has done important and great work since joining us, and now he is free to do what he and so many of you want him to do . . . the work he is best at and has the strongest reputation for: New York product work. 

Please welcome Tom to the industry in his new and full capacity as senior compliance actuary at CCS. We are thrilled he is with us and we know you will be too!

Proposed Regulation 187 (Suitability in Life Insurance and Annuity Transaction)

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I am sure by now most of you have read the proposed revision to NY’s suitability regulation – or at least a news article about it. There have been quite a few. Because the comment period is still open, it is not too late to make your views known to NYSDFS. 

I have many opinions and thoughts about this proposal – some of which I wrote about in an earlier blog post. The longer I sit with it, the more thoughts and opinions I have. Here is one that I did not write about in my earlier post and that I have been ruminating on the last couple of weeks… 

Many of us who are involved in annuity filings, and have made DOL-related fee-only or reduced-commission filings, have heard from DFS in recent months that the DOL compliance obligations of producers should not impact what products are offered, by those producers, to consumers. They have pulled out a circular letter from 1955 and are once again focused on all individual products being “generally available.” They are adamant that they will not approve products that are developed for one distributor. Where they will allow some flexibility by distribution channel, they have stated in objection letters that a distribution channel means, for example, all banks in NY, not all Citizen Banks in NY. Absent a recognized distribution channel, our clients have been told, the product must be “generally available.” 

In that context, what does the definition of suitable mean? “Suitable means in furtherance of a consumer’s needs and objectives under the circumstances then prevailing, based upon the suitability information provided by the consumer and all available products, services, and transactions” (emphasis added). Does “all available products” mean all generally available products? Read with §224.5(c)(1)(i) of the Reg., it appears they do mean only those products, services, and transactions of a single company because that paragraph states that an insurer shall provide consumers with “all relevant policy information with respect to evaluating any transaction or proposed transaction, including a comparison, in a form acceptable to the superintendent, of all available policies of the same product type offered by the insurer; …”

Presumably the intent is for the information provided by the insurer to line up with the products considered by the producer for recommendation to the consumer. Leaving aside the question of how many insurers’ products must be considered and therefore how many disclosures must be provided to each individual consumer, what about all the distributor-specific products that one insurer might have? Is part of the intent of the regulation to bring us back to the days before the 2000 OGC opinion on class distinctions by making an onerous disclosure and suitability standard? Is this a way to go back to what the DFS has often waxed nostalgic for? That time when one company had only one UL policy or one FPDA because the DFS felt having two, unless the second fell into a small number of clearly recognized distribution channels, was unfairly discriminatory? Perhaps not, but the more I think about it the more it seems so to me. How else can these compliance burdens be met? And more than anything, doesn’t that limit product availability to consumers based on producer and insurer compliance burdens? 

Regulation 210 final and effective March 19, 2018

With an announcement on its website on September 19, 2017, DFS posted the final Regulation 210. The headline of the release is: “DFS Issues Final Regulation to Protect New Yorkers from Unjustified Life Insurance Premium Increases.” From the website:

The final regulation provides DFS the ability to review increases prior to implementation and ensure compliance with law, by requiring life insurers to notify DFS at least 120 days prior to an adverse change in non-guaranteed elements of an in-force life insurance policy. Annuity issuers must now file annually with DFS to inform the Department of any adverse changes to annuity policies made in the prior year. 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. 

Watch this space for more discussion of the final regulation and don’t miss the in-depth session we have scheduled at our November 3, 2017 symposium in Hartford, CT. March 19 will be here before we know it so implementation efforts must begin quickly. Make sure you are on the right track in November!

 
 

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.