Isn’t Life Grand?

Well, perhaps the legislative and regulatory changes impacting life insurers this year are not “grand,” but they certainly are ones which require compliance. A few of the more recent changes, as well as a few with upcoming operative dates, bear mentioning.

California’s SB 713, effective Jan. 1, 2012 enacts the Life Insurance Proceeds Disclosure Act of 2011. Continuing the focus we saw in 2010, this Act establishes multiple disclosure standards for the payment of life insurance benefits to a beneficiary by means of a retained asset account if the insurer offers a retained asset account as a method for satisfying the claim or establishes such an account as an alternative to a lump sum payment.

Effective Aug. 23, 2011, Illinois’ insurance code section 215 ILCS 5/224 provides that death claims must be paid within 31 days from the date of receipt of proof of loss or from the date of receipt of sufficient information to determine its liability or from the date that any legal impediments to payment of proceeds that depend upon action of parties other than the insurer resolved, whichever option is later. If the claim payment timeframes are not met, the insurer must pay interest on the overdue claim at the rate of 10% annually on proceeds due from the date of death until the total payment or first installment is paid. An additional regulatory change is that the policy is permitted to require that due proof of the death of the insured must consist of a certified copy of the death certificate of the insured, or other lawful evidence providing equivalent information, and proof of the claimant’s interest in the proceeds.

On a related note, Illinois’ Company Bulletin 2011-3 (Revised) replaces the earlier Company Bulletin 2011-3, originally issued on Mar. 24, 2011, to address requirements for Retained Asset Accounts (RAAs). The interest rate change in 215 ILCS 5/224, as noted above, increases the interest rate on proceeds payable by means of RAAs for life insurance policies from 9% to 10%.

Maryland’s revised regulation, COMAR 31.04.17.13 effective Oct. 3, 2011, adds to the existing list of health insurance benefits that may be provided in an ordinary or industrial life insurance policy. Insurers may now include benefits:

• Permitting a second opinion for health conditions specified in the policy
• Providing a lump-sum benefit for a disease specified in the policy meet the requirements established under Ins. 15-109 which defines specified disease policies and minimum loss ratios, as well as establishing regulatory provisions.

Recently, Nevada issued two bulletins addressing compliance requirements for life insurance policies. Bulletin 11-008, dated Sept. 1, 2011, reminds insurance companies that AB 74 was signed into law on June 17, 2011, and amends the free-look period requirements. Non-replacement individual life policies and annuity contracts must include a provision allowing the owner to cancel the policy within 10 days after delivery and receive a full refund, while replacement policies are required to provide a minimum 30-day free look period and receive a full refund if returned. Revised forms were to have been approved by Oct. 1, 2011.

Individual deferred annuities are addressed in Bulletin 11-007. Insurers’ policy forms need to be in compliance with these new provisions, with any required revisions to be filed with the Division prior to use. For contracts issued in Nevada on or after Jan. 1 2012, this Bulletin provides the following clarification for purposes of calculating the minimum cash surrender value of an annuity:

• The minimum nonforfeiture amount must be determined using a maturity date that is the latest annuity commencement date allowed by the contract but not later than age 70 or the 10th anniversary of the contract, whichever occurs later.
• For contracts with flexible considerations the 10th anniversary of the contract is determined separately for each consideration
• A surrender charge may not be imposed on or after the maturity date stated in the contract.
• The cash surrender value available on or after the maturity date must be equal to the amount available upon annuitization.

And all of these changes are only examples of the many moving parts we have seen this year impacting the “life” of the life insurance industry.

Editor’s Recommendation: Keep current with legislative and regulatory changes affecting life insurance and annuities with NILS INsource.