Ignorance is Bliss?

Certainly we all have had times when we wished we didn’t have the vision to see possible pitfalls ahead, but instead were able to simply move on full speed ahead into the unknown, putting all fears aside. I couldn’t help but think of this phrase a short while ago while on a ski trip with my family.

I’m a fair skier, good on my best day, but I had grown a bit weary after a long day on the slopes. It was snowing quite heavily, and as it was late in the day, there weren’t many people left on the mountain.  In fact, there were only two of us on this particular run: a young snowboarder, probably no older than eight or nine years old and me. I started the run a bit ahead of my young companion, but I missed the turn that would have taken me on my fairly gentle ‘blue’ run back to the lodge. Instead, I found myself at the top of a fork in the trail with only two long double blacks (most difficult) ahead. I stopped and began contemplating my predicament. Even when fully rested and in my best skiing, these slopes would be well beyond my ability. I pondered at the prospects—down a steep mogul run to the left, or on an even steeper, yet less bumpy trail to the right. Fearful thoughts ran through my head. I thought about my family and friends who I would leave behind without telling them how much I cared. Who would take care of the pets? Had I made my life insurance premium? And so on.

I was preparing to remove my skis and start the embarrassing but safer ‘walk of shame’ descent, when suddenly from out of the snow emerged the young snowboarder. Undaunted by the poor visibility or the perils ahead, he flew past me and over the sharp crest, disappearing into the heavily falling snow. Hearing neither a terrifying scream nor a loud thud and even though I could no longer see him, I assumed he escaped without incident.

Emboldened by what I had just seen, I snapped back into my skis and started down. I am happy to say that while I may have stopped once or twice (ok, more like five or six times), I made it down unscathed.

So, what’s the point here? After all, the kid made it down. In fact, he made it with probably minimal effort and far more enjoyment than I. Ignorance (in this case of the possible life threatening slopes) truly was bliss.

I would suggest to the reader that while it may be perfectly acceptable for an obviously skilled snowboarder to put fear and good sense aside, such cavalier actions in business are unwise, especially in the insurance industry.

Other than the nuclear power business, few if any industries are as heavily regulated (and litigated) as ours. Regulators may suggest that they do a lot to keep the participants informed, and to an extent they’re right. But just like the ski resort operator who puts up signs and provides trail maps, agents, marketing organizations, and carriers need trained professionals to help them navigate through potential pitfalls.

I’m not suggesting that insurance agencies play it safe, staying on the easier slopes at all times. Often, risk does bring reward. An occasional ‘double black diamond’ trail may be the right move for your business. Just make sure that when you head over that crest, you know exactly what you’re getting into. Engage an in-house, experienced compliance person, an outsourced resource, or both.

Properly assess the planned new venture before investing in it too heavily. There are plenty of examples of well-intended, poorly planned ideas especially in the advanced sales space that have left casualties strewn on the proverbial trail.

Periodically review your operation. With frequent changes in regulation and in litigation, it is a good idea to test even previously tried and true processes against the current environment. Understand the risks, take the proper steps to mitigate them sufficiently and then push on down the hill. Enjoy the run!

NY's Proposed New Department of Financial Regulation

In the Executive Budget released today by Governor Cuomo, we get a look at the vision for the new Department of Financial Regulation. In the Agency Presentations release, (see pages 131-134) the mission of the new agency is described, in part, as follows: “The new Department of Financial Regulation (DFR) harnesses the regulatory powers and expertise of the Banking and Insurance Departments, as well as the Consumer Protection Board, to make the State’s oversight of financial services responsive to the 21st century needs of the industry and its consumers….Consolidation of these agencies and activities within a single agency platform will afford the State the ability to unify the State’s regulation of financial services and to more rapidly and adroitly respond to changing market practices and consumer preferences, thereby ensuring the industry’s continued integrity while shielding consumers from abuses.”

As I copied this passage from the budget book, I stumbled on the words “industry” and “industry’s” instead of “industries.” It appears that the regulatory consolidation is re-defining banking and insurance as a single industry.

After deciding to advocate consolidation of these two agencies, the governor could have taken the approach that while these industries are different and unique, there are enough similarities that regulatory economy can be achieved by combining agencies and personnel. But it seems he may be going much further.

At least in this preliminary view, it appears the regulatory framework being proposed in this budget is that there is a single industry; financial services. This document suggests that the governor views banking and insurance as more similar than different - they can not only be regulated by a single entity, they can be viewed as a single industry. If accurate, that is a huge shift in perspective and it could have very significant implications for how insurance is regulated in NY.

Another major initiative seems to be in the examinations the DFR will conduct. In the Program Highlights section of the discussion, under “Regulation” it states: “To ensure the safety and soundness of all regulated entities, the Department will monitor banks, insurance companies and other financial institutions to identify problems and will work with management to promptly solve them. The Department will carry out this responsibility through annual on-site examinations, regular review of institutional financial reports, and periodic site visits.”

Annual on-site examinations?

Under Budget Highlights, the document states that the proposed 1.1% increase in budget over the combined banking and insurance budgets in part “provides additional resources that will allow the Department to perform more on-site examinations of insurance companies. Increasing on-site examinations will result in savings to the insurance industry by reducing costly direct-pay examinations for which insurers contract with outside vendors to fulfill regulatory requirements.”

While there is no question that the third party vendors are expensive, it seems counter intuitive that doing more on-site examinations in this age of technology is more efficient and cost-effective. In addition, there are going to have to be very significant changes to the examination process if they are going to be annual. It could easily result in what are essentially perpetual examinations.

Finally, in the Consumer Protection section, there is another possible indication of changes to come. “The Department will strive for the fair treatment of insurance policyholders, claimants and the public through the regulation of company claim payments and sales practices, responses to consumer complaints, and the timely review of insurance company denials of coverage. The Department will promote high standards of industry conduct and competence through testing, oversight, and pre-licensing and enforcing educational standards of licensees.” No mention of approval of policy forms here. Instead, this states that “The Department will proactively educate consumers regarding unscrupulous financial industry practices and products and will advocate on behalf of consumers who have been defrauded or harmed by such abuses.”

Obviously much can, and probably will, change before the new agency gets finalized. And some of the proposals here would require other changes to law. However, one thing seems certain; there are many more changes coming to the regulation of insurance in NY than a change in the name of the executive agency.

NYSID Website Has New Page on Modernization Initiative

I have previously written about the Modernization Initiative. (See 12/3/2010 post.) Today the NYSID unveiled a new page on their newly designed website devoted to the Initiative. In addition to the final report of the committee looking at modernization, there is the previously announced first-ever webinar on doing “me too” property and casualty filings. Most interesting are the updates as of January 11, 2011 that are provided on that page. It is great to see some of the recommendations coming to life and being implemented. Given the concentration of my own work and my participation in the effort, it would be great to see some more updates dealing with the life side, but movement and progress is good!

It is also a good idea to have all the efforts pulled together in one place on the website so that those of us who are interested can find them easily and continue to follow the modernization progress. I am hopeful that the implementation will continue even though we are now looking at a future Insurance Department that may be combined with the Banking Department and the Consumer Protection Board.

Use of 8/9/2010 Variable Material Checklist for NY Policy Form Submissions

As a member of the life committee of the New York State Insurance Department’s task force on modernizing insurance regulation, I worked with Ms. Nelligan on the creation of a checklist for use when drafting memoranda of variable material for life and annuity policy form submissions. This was an area of concern because so many certified submissions (CL-6) are rejected due to variable material problems. In drafting the checklist, we tried to identify the most common errors and provide concrete tips for avoiding them. The [checklist] we came up with was posted on the NYSID website last week.

This week, I had my first occasion to use it during the process of preparing variable material for a client. While I was obviously familiar with its content, I found the checklist format very helpful as I went through the process. I found it useful both in the initial drafting and in doing a check before finalizing. I think anyone who is preparing these for submission will find it of value and I encourage you to check it out on the website and use it in conjunction with the other posted guidance on this topic.

form filings variable material checklist insurance regulation modernization