Insurance companies issuing annuities definitely had some issues to deal with this year, both in terms of monitoring proposed changes and then implementing modifications to policies and procedures after the regulatory dust had settled. From the specific “annuity-only” provisions concerning disclosures and suitability requirements to broader claims issues, 2012 was a remarkable regulatory year requiring many changes to insurers’ policies and procedures across multiple functional areas.
Claims processes in focus
While it was the life insurance field that seemed to garner much of the unclaimed property attention this year, it is clear that the recent regulatory scrutiny into this aspect of claims, as well as retained asset accounts and other settlement options, impacts the annuity side of the business. In looking back at some of the unclaimed property legislative developments this year, we consistently see specific inclusion of annuities in the newly mandated claims processes. One such state initiative is Alabama’s HB 126, the “Unclaimed Life Insurance Benefits Act,” which requires insurers take certain steps within 90 days of a death master file match. They must not only complete a commercially reasonable effort to confirm the death of the insured, annuitant or retained asset account holder against other available records and information, but also determine whether a policy or contract insuring the insured or annuitant is in force or a retained asset account exists and take action regarding the payment of benefits where applicable.
The Alabama Department of Insurance continued the regulatory flow of information on unclaimed property with its bulletin of October 23. This bulletin provides information on the implementation of the department’s new life insurance/annuity “Search Service,” which is expected to become operational on Feb. 1, 2013, and details insurer requirements associated with this initiative.
Some of the more immediate steps to be completed by insurers prior to the end of this year include accessing the “Life/Annuity Policy Search Service” link on the department’s website to establish an account, designating the insurer’s Policy Search Coordinator and creating the Coordinator’s user ID (which will be the coordinator’s company email address and individual password). After this Search Service becomes operational, there is a defined monthly process for each insurer’s coordinator. This includes the matching of the department’s spreadsheet to the insurer’s records to determine if there is a match, initiating contact with the beneficiary or beneficiaries identified in the insurer’s records to determine what may be needed for the beneficiary or beneficiaries to submit a claim, and submitting a completed “Policy Found Form” to the department.
Yet another aspect of claims was addressed by the Colorado Division of Insurance this year in response to consumer complaints that some companies were settling claims by issuing prepaid debit or stored value cards. Recognizing that there was no state law that either permitted or prohibited the use of these cards in the payment of insurance claims, the division issued its Bulletin B-6.3. If an insurer uses these cards, it must adhere to certain conditions set forth in that bulletin, including allowing the claimant to receive claims payment by other methods and the retention of liability by the insurer for the payment to the claimant of any outstanding claims settlement proceeds in the event of the insolvency or insufficiency of the issuer of the prepaid debit or stored value card. Additionally, the claimant must be able to deposit the funds from the card into his or her own financial institution account with no fee, access charge or surcharge for doing so.
Consumer protection is the norm
As expected, consumer protection continues to play a prominent role in legislative and regulatory initiatives. California’s SB 1170, effective Jan. 1, 2013, addresses notice requirements for initial meetings in a senior’s home in connection with life insurance or annuity solicitation. A detailed advance notice must be sent no more than 14 days prior to an individual’s initial meeting with the senior, but no less than 24 hours in advance. Current delivery restrictions only address the “no less than 24 hours” time frame. The advance notice, a stand-alone document, will have to be provided to the senior in 16-point, rather than the existing 14-point type. Furthermore, other information must be in the notice, including specific information regarding the agent, including his or her full name and license number, and a statement advising of the sales-related purpose of the visit.
The NAIC’s Model 278 “The Use of Senior Designations in the Sale of Life Insurance and Annuities” has essentially been adopted by many states. However, that number continued to grow this year with Indiana’s implementation of its Rule 79, “The Use of Senior-Specific Certifications and Professional Designations in the Sale of Life Insurance and Annuities,” which became effective August 18. Consistent with the objectives of that model, Indiana now prohibits insurers from using a senior-specific certification or professional designation that indicates or may mislead a purchaser or prospective purchaser that the insurance producer has special certification or training in advising or servicing seniors with regard to certain aspects of the solicitation, advisability, selling or purchasing of a life insurance or an annuity.
In Nevada, a revision to NAC 686A.573, effective September 14, which provides for the “Important Notice Regarding the Replacement of Your Annuity Contract,” increases the required free-look period from 10 days to 30 days. This applies to producers who replace, offer to replace or propose to replace an existing individual fixed deferred annuity contract with a new annuity contract.
Ohio adopted annuity nonforfeiture product standards in its Rule 3901-6-16, effective July 11. Included in this rule is a definition of the maturity date, as well as the insurer requirements to be used in calculating the nonforfeiture values for certain product features and designs used in annuity contracts. It also outlines requirements for bonus benefits and the conditions under which bonus benefits may be forfeited. These standards apply to specified annuity contracts issued 90 days after the effective date of the rule.
South Dakota’s Bulletin 12-04 applies to annuity contracts and to riders, amendments or endorsements attached to annuity contracts, issued on or after Jan. 1, 2013, that provide access to values or benefit guarantees based on long-term-care-type triggers such nursing home confinement and home care. The bulletin specifies that these annuity provisions are not subject to otherwise applicable state laws and regulations on long-term care provided that certain conditions apply. These qualifying conditions, as addressed in the bulletin, include detailed requirements on advertising, the number of triggers resulting in the availability of access to benefit guarantees or values, and disclosures indicating that such availability is not intended to provide long-term care insurance.
With 2013 just around the corner, the industry can certainly expect to see additional legislative and regulatory efforts in the area of unclaimed property and retained asset accounts. Even though many states have addressed these issues over the past few years, there are states that have not specifically defined additional requirements concerning unclaimed property and disclosures in retained asset settlement options. While we can classify these types of regulatory developments as consumer protection since these are intended to provide payments to beneficiaries, other areas of consumer protection in the underwriting and sales solicitation process have not seen any significant signs of slowing down. Understanding the underlying concerns of state regulators and knowing the individual, and sometimes unique, state requirements that evolve with each passing year, can assist insurers preparing for 2013’s regulatory challenges.
For more from Kathy Donovan, see:
- Annuity suitability: Assessing compliance risk
- Annuity disclosures: Changes May be coming to a state near you
- Senior designations: The wave continues