New York State Floats Regulation To Require Life Insurance Carriers To Justify Cost Increases

Yesterday, the New York State Department of Financial Services proposed a new regulation designed to “protect New Yorkers from unjustified life insurance premium increases.”

In a press release dated November 17, 2016, Maria T. Vullo, the Financial Services Superintendent, proposed a regulation to “govern life insurance company practices related to increases in the premiums of certain life insurance and annuity policies.”  The regulation would provide the agency the opportunity to review increases by requiring the carriers to provide notification “at least 120 days prior to an adverse change in non-guaranteed elements of an in-force life insurance or annuity policy.” In addition to notifying the agency, the regulation would require the carriers to “to notify consumers at least 60 days prior to an adverse change in non-guaranteed elements of an in-force life insurance or annuity policy.”

According to Superintendent Vullo, “under New York law, life insurers may only increase the cost of insurance on in-force policies when the experience justifies it and only in a way that is fair and equitable.” She went on to note that her agency “will not stand by and provide life insurers free reign to implement unjustified cost of insurance increases on New Yorkers simply to boost profits.” (1)

The regulation is designed to “establish standards for the determination and any readjustment of non-guaranteed elements that may vary at the insurer’s discretion for life insurance policies and annuity contracts.” It requires carriers to “establish board-approved criteria for determining non-guaranteed charges or benefits” and mandates an agency review of “the anticipated experience factors and non-guaranteed elements for existing policies whenever the non-guaranteed elements on newly issued policies are changed.” The regulation defines experience factors as “investment income, mortality, morbidity, persistency, or expense that represents the insurer’s financial experience on a policy. Profit margin is not an experience factor.” (2)

An article in The Wall Street Journal (WSJ) notes that although the regulation only applies to New York state, it “could be widely copied by other insurance departments.” We at ITM TwentyFirst have reported often about the cost of insurance (COI) increases that have hit the life insurance industry and the lawsuits that have followed. The WSJ article reports that those lawsuits have alleged that “insurers are hiding behind the little-used contract provisions to rummage up cash for shareholder dividends.” But the article also points out that “insurers maintain they are acting in accordance with policy provisions allowing higher charges up to a maximum amount, based on expectations of future policy performance.”  (3)

According to the press release from the New York State Department of Financial Services, “the proposal is subject to a 45 day public comment period following publication in the State Register on November 30, 2016 before its final issuance.”  We will be following the progress of the proposed regulation and provide updates when warranted. For a copy of the NY Department of Financial Services Proposed Insurance Regulation 210, contact mbrohawn@itm21st.com.

 

  1.  NY Department of Financial Services Press Release, November 17, 2016
  2. NY Department of Financial Services, Proposed Insurance Regulation 210, November 17, 2016
  3. New York Regulator Aims to Require Life Insurers Justify Higher Rates on Old Policies, Leslie Scism, The Wall Street Journal, November 17, 2016

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