This past year was a big one for the insurance industry. The life and health sector in particular saw significant legislative and regulatory activity across all jurisdictions in 2009, a 12-month period that may be described as the most active in a long time in terms of actual and potential change affecting insurance business.
Recently, the Insurance Compliance Solutions group at Wolters Kluwer Financial Services researched this activity to help industry professionals understand the magnitude of the changes they are facing, as well as what those changes mean for their practice.
By monitoring all state legislatures and Congress, Wolters Kluwer found that more than 11,000 pieces of legislation with potential effects on the insurance industry had been introduced through the end of the third quarter of 2009. This reflects an increase of roughly 80 percent over the same period in 2008, and an almost 60 percent increase over the same period in 2007.
While this level varied from insurance line to insurance line, the effect of this activity on the life and health industry is worth noting. Approximately 30 percent of last year's activity through the third quarter affected all lines of insurance business, while nearly 25 percent specifically addressed health issues, and almost 9 percent focused exclusively on life insurance. That means that nearly 65 percent of the total bills introduced have required careful monitoring by life and health insurers and producers. This research not only demonstrates the general trend toward increased activity, but also the overwhelming focus on issues affecting life and health insurance lines.
What's being done?
Health care-related legislation in particular is getting more attention in many states. Some familiar examples that have recently received media attention are restrictions on coverage denials based on pre-existing conditions, the idea of raising the eligibility ages of dependents in order to allow greater access to health insurance for adult children, and more mandated benefits in individual health insurance polices.
In addition, more states are looking at setting standards for the use of senior designations in the sale of life insurance and annuities, which speaks to increased activity in the area of consumer protection. This trend has also led to more restrictions on the sale of life insurance policies on the secondary market (life settlements) and the adoption of suitability provisions for annuity sales. One such example is the Ohio Annuity Disclosure Pilot Program, where insurers agree to use disclosure templates for the marketing and sale of fixed and indexed annuities.
In a supporting role for the consumer protection theme that ran throughout the past year, the industry also saw an increase in the actions taken to limit a life insurer's ability to take adverse actions against applicants or policyholders based on past or future lawful travel destinations. Missouri's SB 126, for example, prohibits life insurers from denying, refusing to renew, canceling, restricting, or terminating a policy based upon past or future lawful travel destinations, as well as from charging a different rate based on such travel. New Jersey's AB 1586 took a similar step toward prohibiting unfair discrimination in the issuance, renewal, or rating of life insurance policies based on future foreign travel.
What you can do
Regardless of the level of activity in any given year, the key to making sure you're compliant with legislative and regulatory changes in the life and health insurance industry lies in knowing not only the vast body of law that governs the industry, but also being aware of and understanding any new or revised state and federal requirements throughout the year.
It can be challenging, however, to obtain this information and maintain its flow throughout your practice. Some challenges include identifying the type and scope of changes that any legislative or regulatory activity requires; determining the best sources of accurate and timely information on the effective date of any changes; internally evaluating the effect on your practice and the way you do business; and implementing new or revised procedures with an eye to compliance. Any system put in place to respond to change should be adaptable, flexible, and sustainable, as practices need to be on the leading edge of information to avoid the risk of future noncompliance. Your compliance departments and legal counsel may then be better positioned than you to monitor all regulatory changes, evaluate and determine how the changes apply to your practice, and identify the steps you need to take to be compliant. This type of system would be more efficient, allowing you to be more knowledgeable and able to interact more effectively with both customers and the companies you represent.
For a long time, the need to be compliant with legislative and regulatory changes has presented a challenge for many professionals, both within and outside of the insurance industry. Coupled with the high volume of sales that this particular industry is experiencing, the daunting obstacle of understanding the effects of these requirements and obtaining all the information in a timely manner is of immediate importance in conducting your business. Make sure you stay up to date with all new regulations, have a process in place, and keep one ear to the ground for changes -- because there will be plenty more to come.
Kathy Donovan is the senior compliance counsel of the Insurance Compliance Solutions group of Wolters Kluwer Financial Services. She can be reached at firstname.lastname@example.org.