Bill S5024-2011

Relates to replacement of individual life insurance policies or annuity contracts

Relates to replacement of individual life insurance policies or annuity contracts; amends provisions relating to misrepresentations and misleading statements; requires replacements regulations be consistent with policies of the national association of insurance commissioners.

Details

Actions

  • Jun 20, 2012: referred to insurance
  • Jun 20, 2012: DELIVERED TO ASSEMBLY
  • Jun 20, 2012: PASSED SENATE
  • Jun 6, 2012: ADVANCED TO THIRD READING
  • Jun 5, 2012: 2ND REPORT CAL.
  • Jun 4, 2012: 1ST REPORT CAL.996
  • Jan 4, 2012: REFERRED TO INSURANCE
  • May 2, 2011: REFERRED TO INSURANCE

Meetings

Calendars

Votes

VOTE: COMMITTEE VOTE: - Insurance - Jun 4, 2012
Ayes (17): Seward, Flanagan, Golden, Grisanti, Lanza, Larkin, LaValle, Martins, Saland, Young, Breslin, Diaz, Espaillat, Kennedy, Parker, Peralta, Stavisky
Excused (1): Smith

Memo

BILL NUMBER:S5024

TITLE OF BILL:

An act to amend the insurance law, in relation to the replacement of individual life insurance policies or individual annuity contracts of any insurer

PURPOSE:

The purpose of this bill is to amend §§2123 and 4226 of the insurance law to establish that the regulation governing replacements of life insurance policies or annuity contracts with another policy or contract should be consistent, to the greatest extent practicable and in the public interest, with the replacements regulation adopted by the National Association of Insurance Commissioners (NAIC).

SUMMARY OF PROVISIONS:

This bill amends §§2123 and 4226 of the insurance law so as to continue to establish that insurers and producers are prohibited from making misleading or incomplete representations of any policy or contract for the purpose of inducing a customer to lapse, forfeit or surrender a policy or contract. This bill further provides that the superintendent of insurance/financial services shall establish rules for the replacement of life insurance policies and annuity contracts and that those rules shall be, to the greatest extent practicable and in the public interest, consistent with the replacement regulation adopted by the NAIC, as amended from time to time. This bill would also amend both sections to remove the current requirement that the· replacement rules must contain a requirement that policies or contracts being contemplated for replacement in New York can only be completed after a complex. cost comparison of the replaced policy or contract to the replacing policy or contract.

JUSTIFICATION:

The bill makes amendments to sections 2123 & 4226 of the insurance law to provide that the regulation governing replacements of life insurance products in this state should be consistent with the NAIC Life Insurance and Annuities Replacements Model Regulation and to remove the requirement that there must be a detailed cost comparison of products before you can replace one life insurance policy or annuity with another one. These amendments leave in place the current provision of law that prohibits insurers and producers from using a misleading or incomplete representation to induce a customer to lapse, forfeit or surrender a policy or contract.

The New York Insurance Department has used the existing provisions of law as the basis for the implementation of the very complicated Regulation 60 governing replacements of life insurance policies and annuity contracts. Since its implementation in 1998, Regulation 60 has not proven to work very well because, in some instances, it requires the comparison of products that are not at all similar (such as a life policy to a deposit-type annuity contract, or vice versa) and, in every instance, results in a lengthy delay (sometimes up to a

month) in completion of the transaction. This delay is due to the fact that the producer selling the new policy or contract and the customer seeking to buy it must wait for the necessary information related to the product being replaced, so that the producer can do the requisite comparison. Pursuant to the current regulation, the information related to the policy or contract to be replaced is supposed to be provided by the company whose policy or contract is being contemplated for replacement -- something that they are not overly motivated, but are compelled by the regulation, to do.

This delay has not always served the customer well. In some instances, they have been unable to timely complete a transaction on an interest-sensitive product and have, as a result, received a final product with less favorable terms. During the recent economic down-turn, consumers who were seeking to replace a variable annuity product with a fixed one were forced to wait a month to consummate that replacement, resulting in an even steeper decrease in the value of their variable annuity before the transaction could be completed. In other, less common instances, they may have had a change in their health status or even passed away while waiting to purchase a policy or contract with better terms than the policy or contract they were seeking to replace. Often-times, these delays are totally unnecessary because the customer is fully aware of the details of their transaction and are anxious to complete their transaction.

New York is the only state in the nation that requires this level of detailed comparison of one product to another. The vast majority of the states have implemented a version of the NAIC Model on Replacements, which requires insurers to provide simple disclosure of factors that you should consider when replacing one life or annuity product with another. This simple disclosure model has proven to be sufficient to deter inappropriate replacements in other states.

If this bill were to be enacted, New York could amend their regulation on replacements so that it is consistent with the NAIC Model disclosure requirement and the practice in most other states. New York law would continue to prohibit misrepresentations by producers or insurers for the purpose of inducing the surrender of a policy or contract, as well as providing for a sixty-day free look period after the replacement of a policy or contract with a new one so that customers having buyer's remorse could reverse their transaction. New York would also continue to require life insurers and producers to conduct a review and determination as to the suitability of every annuity transaction, including replacement transaction, before an annuity purchase is made (Regulation 187). All of these requirements would ensure the proper balance so that New York consumers are being protected from inappropriate sales, yet are still able to complete a desired transaction in a timely fashion.

LEGISLATIVE HISTORY:

New Bill.

FISCAL IMPLICATIONS:

None.

EFFECTIVE DATE:

This act will take effect on the 180th day after it shall have become a law.


Text

STATE OF NEW YORK ________________________________________________________________________ 5024 2011-2012 Regular Sessions IN SENATE May 2, 2011 ___________
Introduced by Sen. SEWARD -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance AN ACT to amend the insurance law, in relation to the replacement of individual life insurance policies or individual annuity contracts of any insurer THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. The section heading and subsections (a), (b) and (c) of section 2123 of the insurance law, subsections (a), (b) and (c) as amended by chapter 540 of the laws of 1996, paragraph 3 of subsection (a) as added by chapter 616 of the laws of 1997, the opening paragraph of paragraph 3 of subsection (a) as amended by chapter 13 of the laws of 2002, are amended to read as follows: Misrepresentations[,] AND misleading statements [and incomplete comparisons]. (a) (1) No agent or representative of any insurer or health mainte- nance organization authorized to transact life, accident or health insurance or health maintenance organization business in this state and no insurance broker, and no other person, firm, association or corpo- ration, shall issue or circulate or cause or permit to be issued or circulated, any illustration, circular, statement or memorandum misrep- resenting the terms, benefits or advantages of any policy or contract of life, accident or health insurance, any annuity contract or any health maintenance organization contract, delivered or issued for delivery or to be delivered or issued for delivery, in this state, or shall make any misleading estimate as to the dividends or share of surplus or addi- tional amounts to be received in the future on such policy or contract, or shall make any false or misleading statement as to the dividends or share of surplus or additional amounts previously paid by any such insurer or health maintenance organization on similar policies or contracts, or shall make any misleading representation, or any misrepre-
sentation, as to the financial condition of any such insurer or health maintenance organization, or as to the legal reserve system upon which such insurer or health maintenance organization operates. (2) No such person, firm, association or corporation shall make to any person or persons any incomplete [comparison] OR MISLEADING REPRESEN- TATION of any such policies or contracts of any insurer, insurers, or health maintenance organization, for the purpose of inducing, or tending to induce, such person or persons to lapse, forfeit or surrender any insurance policy or health maintenance organization contract. (3) Any replacement of individual life insurance policies or individ- ual annuity contracts of an insurer by an agent, representative of the same or different insurer or broker shall conform to standards promul- gated by regulation by the superintendent. Such regulation shall BE CONSISTENT, TO THE GREATEST EXTENT PRACTICABLE AND IN THE PUBLIC INTER- EST, WITH THE REPLACEMENTS REGULATION ADOPTED BY THE NATIONAL ASSOCI- ATION OF INSURANCE COMMISSIONERS, AS AMENDED FROM TIME TO TIME, AND SHALL ALSO: (A) specify what constitutes the replacement of a life insurance poli- cy or annuity contract and the proper disclosure and notification proce- dures to replace a policy or contract; (B) require notification of the proposed replacement to the insurer whose policies or contracts are intended to be replaced; AND (C) [require the timely exchange of illustrative and cost information required by section three thousand two hundred nine of this chapter and necessary for completion of a comparison of the proposed and replaced coverage; and (D)] provide for a sixty-day period following issuance of the replace- ment policies or contracts during which the policy or contract owner may return the policies or contracts and reinstate the replaced policies or contracts. (b) [Any comparison of the policies or contracts of any such insurer, insurers or health maintenance organization shall be deemed to be an incomplete comparison if it does not conform to all the requirements for comparisons established by regulation. (c)] In the determination, judicial or otherwise, of the incomplete- ness or misleading character of any such [comparison] REPRESENTATION, it shall not be presumed that the insured knew or knows of any of the provisions, terms or benefits contained in any insurance policy or health maintenance organization contract. S 2. The section heading and subsections (a), (b) and (c) of section 4226 of the insurance law, paragraph 6 of subsection (a) as added by chapter 616 of the laws of 1997, are amended to read as follows: Misrepresentations[,] AND misleading statements [and incomplete comparisons] by insurers. (a) No insurer authorized to do in this state the business of life, or accident and health insurance, or to make annu- ity contracts shall: (1) issue or circulate, or cause or permit to be issued or circulated on its behalf, any illustration, circular, statement or memorandum misrepresenting the terms, benefits or advantages of any of its policies or contracts; (2) make any estimate of the dividends or share of surplus or addi- tional amounts to be received on such policies or contracts; (3) make any false or misleading statement of the dividends or share of surplus or additional amounts paid by any such insurer on similar policies or contracts;
(4) make any misleading representation, or any misrepresentation of the financial condition of any such insurer or of the legal reserve system upon which it operates; [or] (5) make or deliver to any person or persons any incomplete [compar- ison of] OR MISLEADING REPRESENTATION REGARDING any such policies or contracts for the purpose of inducing, or tending to induce, such person or persons to lapse, forfeit or surrender any insurance policy or contract[.]; OR (6) replace the individual life insurance policies or individual annu- ity contracts of an insurer by the same or different insurer without conforming to the standards promulgated by regulation by the superinten- dent. Such regulation shall BE CONSISTENT, TO THE GREATEST EXTENT PRAC- TICABLE AND IN THE PUBLIC INTEREST, WITH THE REPLACEMENTS REGULATION ADOPTED BY THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, AS AMENDED FROM TIME TO TIME, AND SHALL ALSO: (A) specify what constitutes the replacement of a life insurance poli- cy or annuity contract and the proper disclosure and notification proce- dures to replace a policy or contract; (B) require notification of the proposed replacement to the insurer whose policies or contracts are intended to be replaced; AND (C) [require the timely exchange of illustrative and cost information required by section three thousand two hundred nine of this chapter and necessary for completion of a comparison of the proposed and replaced coverage; and (D)] provide for a sixty-day period following issuance of the replace- ment policies or contracts during which the policy or contract owner may return the policies or contracts and reinstate the replaced policies or contracts. (b) [Any comparison of the policies or contracts of any such insurer or insurers shall be deemed to be an incomplete comparison if it does not conform to all the requirements for comparisons established by the superintendent by regulation. (c)] In any determination, judicial or otherwise, of the incomplete- ness or misleading character of any such [comparison or of] represen- tation, it shall not be presumed that the insured knew or knows of any of the provisions or benefits contained in any insurance policy or contract. S 3. This act shall take effect on the one hundred eightieth day after it shall have become a law.

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