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Table of Contents
International Insurance Issues Committee — Click here to read this article.
Consideration of a Resolution on US Trade Policy — Click here to read this article.
Global Regulatory Framework and Implications for States — Click here to read this article.
Financial Services & Investment Products Committee — Click here to read this article.
Resolution Opposing Federal Pension Reform Legislation — Click here to read this article.
Dodd-Frank On-the-Ground Impacts — Click here to read this article.
State-Federal Relations Committee — Click here to read this article.
Resolution on State IIPRC Enactment — Click here to read this article.
FIO Activity — Click here to read this article.
Market Conduct Related Issues — Click here to read this article.
NCOIL-NAIC Dialogue — Click here to read this article.
Market Conduct — Click here to read this article.
Surplus Lines Insurance Reform — Click here to read this article.
International Regulatory Developments — Click here to read this article.
FIO/FACI — Click here to read this article.
Contingent Annuities — Click here to read this article.
Reinsurance Collateral — Click here to read this article.
Life Insurance & Financial Planning Committee — Click here to read this article.
Proposed Unclaimed Life Insurance Benefits Act — Click here to read this article.
Pre-Need Funeral Insurance Fraud — Click here to read this article.
NCOIL’s 2011 winter meeting was held in scenic, artsy Santa Fe New Mexico. The weather cooperated so in between meetings attendees enjoyed the sights. There were 284 attendees, 64 of whom were legislators, with 11 attending for the first time. Implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Patient Protection and Affordable Care Act, market conduct, and the SLIMPACK versus NIMA issue took up much of the meeting time.
During the Executive Committee meeting, NCOIL elected its 2012 officers; Senator Carroll Leavell (NM) was elected president, Senator Vi Simpson (IN) moved into the president-elect position, Representative Charles Curtiss (TN) will serve as vice president, Representative Greg Wren (AL) will serve as secretary, and Senator Neil Breslin (NY) was elected to fill the Treasurer's position. The next NCOIL meeting will be held in Biloxi, Mississippi February 24 - 26, 2012 and, for those who might be wondering, the full-service sized airport is the New Orleans International Airport.
International Insurance Issues Committee
The chair Senator Travis Holdman (IN) stated that he wanted to arrange for an extended discussion at a future meeting of this Committee regarding the international accounting standards now under development at the IASB and FASB. He planned to ask the Executive Committee to allot a two-hour time slot for a working session that would enable the legislators to learn more about this important issue. [After the session was over NCOIL staff indicated that the session would probably take place during the summer meeting.]
Consideration of a Resolution on US Trade Policy: Holdman stated that before the end of this meeting he wanted to remove from the table the proposed resolution regarding state drug list infringements and any amendments thereto pending before the Committee and to start anew on this issue at the next meeting. At the conclusion of the discussion of this issue, the Committee voted to indefinitely defer the resolution and its sponsors were encouraged to bring back a new resolution.
Holdman noted that when this issue was first brought before the Committee it involved a pending trade agreement with Korea but negotiations on the agreement now include nine countries. The Committee heard a presentation over the phone from several representatives of the USTR. The main concern of the drafters of the original resolution had to do with a "secrecy clause" which prevented nonparticipants in the negotiation for viewing the documents under consideration. After hearing from the USTR representative Stan McCoy, it became clear that only negotiating documents are confidential and that the end product is public. McCoy explained that the confidentiality of these documents allows for an open discussion.
The Committee members appeared to accept this explanation however Representative Greg Wren (AL) expressed his frustration that state legislators are not at the table during trade negotiations involving insurance and that instead the USTR consults with the NAIC.
Global Regulatory Framework and Implications for States: Candace Thorson (NCOIL staff) used a rather complicated exhibit to illustrate the complexities of the global insurance regulatory framework. She spoke about some of the activities of the IAIS, such as its Insurance Core Principles and the Common Framework for Internationally Active Insurance Groups (ComFrame) and the EU's Solvency II, noting that all these initiatives, as well as many other international undertakings related to financial services, will impact the way solvency regulation is conducted in the US.
Financial Services & Investment Products Committee
Resolution Opposing Federal Pension Reform Legislation: Senator Carroll Leavell (NM), NCOIL’s President-elect, introduced this topic. He told the Committee that HR567 and S347, the Public Employee Pension Transparency Act (PEPTA), would preempt state pension laws and mandate that the state and/or local government pension plan sponsors make an annual report to the US Treasury regarding, among other things, the pension plan’s funding, contributions, projections and assumptions, actuarial assumptions, plan participants, investment returns, and outstanding pension obligation bonds. Most disturbing to him, the report must include an alternative projection of the market value of the plan’s liabilities using federally proscribed methodologies and valuations which are based on the unrealistic assumption that all of its funds are invested in Treasury bills. The penalty for not filing these reports is that tax exempt status will be denied for any new debt issued by the state and local governments. The proposed resolution would oppose enactment of PEPTA.
Leavell acknowledged that most state pension funds are underfunded, but he said the states are dealing with their problems. He was most concerned with the impact this legislation could have on the cost of borrowing by states and localities because the federally mandated valuation methodology would make all pension plans appear to be in much worse financial condition than they actually are. He said the low interest rates payable by Treasury bills would seriously lower a pension plan’s projected investment income.
A representative of the National Council of Teachers Retirement Association (NCTRA) testified that his organization supports the proposed resolution. He alleged that PEPTA was not about transparency but rather, by forcing the pension plans to restate their liabilities based upon the lower projected investment income and thereby exaggerating the underfunding of the pension plans, PEPTA would aide those parties that are advocating that all defined benefit plans be converted to defined contribution plans. He stated that Congress is pushing this legislation because of concern, based upon media reports of underfunded public pension funds, that the federal government might have to bail out some of these plans. He was asked whether the governors had weighed in on this issue and responded that he is working with the National Governors Association to develop a similar resolution.
Senator David Thomas (SC), who, when it came time to vote, was the only Committee member to oppose the resolution, stated it was hard to oppose a transparency act especially given that the projections would indicate that the plans are woefully underfunded. He added that he had read the bill summary and it appeared to be a good idea and he asked why it was not reasonable for the federal government to collect this information. The NCTRA representative replied that the plans did not object to filing financial reports but do object to the requirement that the liability be recalculated based upon all investments being in US Treasuries. Thomas responded that the legislators should be concerned if the presumed rates of return being used by the plans are too high. The speaker replied that the requirement in the legislation assumes there would be no diversification in the plan’s portfolios.
Greg Hanna (AAA) noted that pension plan accounting rules are developed by the Government Accounting Standards Board (GASB). He suggested that the focus should be on governance of the plans and stated that the AAA is exploring ways to develop a model or guideline on corporate governance for pension plans. Assemblywoman Nancy Calhoun (NY) suggested that the alternative projections requirement in the legislation would allow the federal government to hold the states hostage. Representative George Keiser (ND) added that the federal government already has a role with respect to pension plans for nongovernment employees and the reality is that many of the public employee plans are underfunded and several have gone into default. He said that he supports the resolution, but recommended that the states develop their own transparency rules. The Committee then voted to adopt the resolution.
Dodd-Frank On-the-Ground Impacts: Michael Humphreys (NCOIL staff) stated that the purpose of this agenda item was to try to find out how the Dodd-Frank Wall Street Reform and Consumer Protection Act was impacting insurance companies. The Committee had invited industry representatives to speak on this question.
Bill Anderson (NAIFA) told the Committee that Dodd-Frank has had a serious effect on his members. He stated that the law provides for the SEC to develop a harmonized standard of care rule governing broker-dealers and investment advisers. Anderson explained that broker-dealers, who sell variable annuities as well as stocks and bonds, are currently subject to a suitability standard whereas investment advisors are subject to a fiduciary standard. He stated that if the broker-dealers are required to meet a fiduciary standard it would increase their costs and many of his members would get out of the business rather than comply. The SEC has published its proposed rule and a similar rule has been proposed by the Department of Labor for application to ERISA plans.
Kevin McKechnie (ABIA) stated that Dodd-Frank is thousands of pages long and require the development of approximately 400 rules of which only 74 have been finalized and, as of last week, deadlines for 145 rules had been missed. McKechnie bemoaned the fact that the Act had largely not touched the insurance industry. He stated that the Durbin amendment regarding debit card fees had made a serious dent in bank revenues; but the lower fees would not save consumers money because the retailers are not passing their savings along by reducing the prices. McKechnie claimed that Walmart would get a windfall of $5 billion over the next ten years. He also claimed that the reason approximately 1100 banks are on the FDIC watch list was not because they are in financial difficulty but rather because the federal regulators, specifically the Financial Stability Oversight Council (FSOC), would prefer to manage 2000 banks as opposed to the current 7000.
John Gerni (ACLI) told the Committee that while Dodd-Frank had not significantly impacted the insurance industry, the ACLI was tracking the rulemaking for four of its provisions: the standard of care rule being developed by the SEC (of which Anderson had spoken), the final rules on derivative regulation, the credit for reinsurance collateral issue with respect to non-US reinsurers, and the establishment of the Federal Insurance Office (FIO). Gerni said the rules on derivative regulation are of great concern to the insurance industry since insurers are end-users of derivatives used to reduce and hedge risk related to interest rates. He said the industry is lobbying to ensure that its swap activities are not required to be traded through a clearinghouse or exchange. (Gerni noted that the proposed rule already excludes life and annuity products, but that the industry still has concerns with the language.)
Gerni identified three additional areas of Dodd-Frank that will affect some insurers which are oversight of insurance entities deemed to be Systemically Important Financial Institutions (SIFIs) by FSOC; increased oversight by the Federal Reserve of thrift holding companies, which is of concern because some insurers own thrifts; and the possibility of assessment by the FDIC under the orderly liquidation provisions for SIFIs.
Senator Jason Rapert (AR) suggested the Committee should consider adopting a resolution that would urge Congress to repeal the Dodd-Frank Act or at least opposing the overreaching regulations currently being developed.
Keiser stated that he agreed that the regulations being drafted would hurt, rather than help, insurers. He hoped the insurers could document their actual impact, perhaps by comparing such things as the availability of credit pre and post issuance of Dodd-Frank generated regulations. McKechnie suggested that financial service companies could document their increased compliance costs and, for consumers, the measure should be pre and post availability and the cost of financial services products.
The Committee adopted an amended version of NCOIL’s Identity Theft Protection Model Act which was up for review in accordance with NCOIL’s bylaws. Due to time constraints, discussion of the NAIC white paper on social media was deferred to the spring meeting.
State-Federal Relations Committee
Resolution on State IIPRC Enactment: Karen Schutter, Executive Director of the Interstate Insurance Product Regulation Commission (IIPRC), gave a brief report on the status of the IIPRC. She stated that 41 states have joined the compact, representing 70% of premiums written in the US and 132 insurers are registered to file their products with the Commission. The IIPRC has completed work on its standards for all personal lines products, for annuities and for life, long-term care, and disability insurance and has begun working on standards for group products.
The Committee adopted a resolution urging those jurisdictions that have not joined (Arizona, Arkansas, Connecticut, Delaware, Florida, Montana, New York, North Dakota, South Dakota, and Washington DC) to pass the enabling legislation.
FIO Activity: Representative Bob Damron (KY) introduced this agenda item by stating that the Federal Insurance Office (FIO) exemplified the problem legislators have dealing with the federal government which “tells us what to do and then doesn’t want to have any involvement with us state legislators”. He said, unlike the IIPRC, legislators do not have a voice at the table at FIO.
Humphreys reported that FIO was starting to staff up and that two weeks ago the Treasury had announced the makeup of the Federal Advisory Committee on Insurance (FACI) which will provide recommendations and advice to FIO. The membership consists of seven insurance commissioners (although Humphreys noted one of the commissioners appointed is moving on to HUD), six industry representatives, a consumer representative, and an academic. FACI will provide recommendations and advice to FIO.
Humphreys stated that FIO is working on its report to Congress on how to modernize and improve insurance regulation in the US. FIO has requested comments by December 16th and is on target to meet its January submission deadline. Comments were being sought on systemic risk in insurance, the degree of national uniformity in state regulation, international coordination, protections for insurance consumer, and gaps in regulation. Comments were also requested on a federal role in insurance regulation regarding the costs and benefits of federal regulation, the feasibility of federal regulation of certain lines of insurance, the ability of a federal regulator to eliminate arbitrage, and the ability of a federal regulator to provide robust consumer protections (including access to insurance products by traditionally underserved communities, consumers, minorities, as well as affordable insurance products to low and moderate income persons).
Humphreys noted that the FIO director, Michael McRaith, had recently testified before Congress and had emphasized that FIO was not supposed to be a regulator; that its primary function would be data collection; and that FIO must first go to public sources to fill its data calls. He stated that FIO was created to monitor the insurance industry, to provide recommendations to Treasury, and to represent the US on international insurance matters. He noted that FIO has the authority to preempt state laws (in conjunction with the USTR) that are inconsistent with trade agreements.
Keiser encouraged industry to submit comments and opined that FIO perceived itself as being partner in future regulation of the insurance industry.
Julie Gackenbach (Confrere Strategies) stated that her discussions with McRaith suggest that he interprets his duty to monitor the industry as requiring FIO to make recommendations for improvements in regulation and that he would like to see an open discussion of what he views as inefficiencies in state regulation and, regarding maintaining an international competitive market, he does not believe that the status quo is acceptable or sustainable. She said McRaith has been spending a lot of time on international coordination and that FIO has replaced the NAIC as the official US voice at the IAIS and that FIO has been holding meetings with stakeholders and has tentatively scheduled a roundtable discussion for December 9th to which McRaith plans to invite other federal regulators in order to begin educating them on insurance so that they will better understand how their actions impact the insurance industry.
Kevin McKechnie (ABIA) focused on one aspect of the request for comments – the degree of national uniformity of state insurance regulation including identification of methods for accessing excessive, duplicative, or outdated insurance regulation. He suggested that the process for licensing insurers fits that description. He told the legislators that industry will be recommending that the states implement a uniform licensing procedure and predicted that the federal regulators will give the states a deadline by which to comply, as was done in NARAB. McKechnie noted that the NAIC does have a uniform licensing standard but, he said, not all states have adopted it and he identified Florida (which will lead the NAIC in 2012) as one of the outliers. He suggested NCOIL put together a working group to develop comments to submit to FIO.
Representative George Keiser (ND) believes that Dodd-Frank may well be repealed in the next Congress so he asked Gackenbach and McKechnie whether it would be wise to submit comments. McKechnie did not think it was likely that Dodd-Frank would be repealed, but suggested it might be possible to improve it. Gackenbach agreed and noted that there is bipartisan support for FIO.
Market Conduct Related Issues: John Gerni (ACLI) reported on the results of a survey the ACLI had conducted at the request of Keiser regarding insurers’ experiences with market conduct regulation. He stated that the survey results included some positives in that the regulators are more often doing targeted rather than comprehensive examinations; however, he noted, very few of the examinations are multi-state and industry would like to see more inter-state collaboration. Gerni also highlighted the high costs of these examinations as well as the extensive length of time they take to complete.
Deirdre Manna (PCI) noted that insurers were getting very little feedback from the regulators on the market conduct annual statements they submit. She also noted that Commissioner Sharon Clark (KY), who chairs the NAIC committee responsible for market conduct, was conducting a survey of the states regarding their market conduct activities and would also be surveying the industry. A representative of the title insurance industry complained about the use of contract examiners that he said cost about six times as much as examiners employed by the states and often have little expertise in the area they are investigating. He would like the regulators to create an accreditation program for contract examiners that would include education requirements and compensation standards.
Keiser and Damron urged the states to take another look at the NCOIL’s Market Conduct Surveillance Model Act. The model was up for reauthorization and a motion to reauthorize it passed unanimously.
This meeting was chaired by Representative George Keiser (ND). The NAIC was represented by Commissioner Eleanor Kitzman (TX), Commissioner John Doak (OK), Superintendent John Franchini (NM), and Amanda Yanek (NAIC staff). Keiser stated that at the beginning of the year he and Senator Carroll Leavell (NM) had met with the NAIC leadership to identify objectives for the coming year and devise an agenda for these dialogues.
Market Conduct: Keiser reviewed the frustration of the legislators with the slow progress being made by the regulators in addressing the perceived problems with their market conduct activities. He stated that NCOIL had asked industry to provide more than just anecdotal data regarding its complaints and that the ACLI had submitted a letter which contains results of a survey of its members. Letters were also received from NAMIC and the AIA. Keiser stated that the submissions indicate some improvements in the conduct of market conduct examinations but also showed some troubling trends and NCOIL had sent a letter to the NAIC asking for its reaction to the industry surveys and what steps the regulators could take to move this issue in a positive way.
Yanek replied that in NCOIL’s letter had not arrived until after the NAIC national meeting held two weeks ago and the commissioners representing the NAIC at this meeting had not had an opportunity to review it; however, Commissioner Sharon Clark (KY), who chairs the Market Regulation and Consumer Affairs (D) Committee, is aware of the issue and has made market conduct a priority for her committee in 2012. "D" Committee will be sending a survey out in December to the states requesting specific market conduct data and also plans to send a similar survey to the insurers.
Doak commented that while he is the new commissioner he shares NCOIL’s concerned with the cost of examinations and is reviewing the issue in his department. Keiser asked that the commissioners consider adoption of the NCOIL market conduct model law, suggesting that they would find it to be reasonable.
Kitzman noted that Texas had adopted the NCOIL model and suggested that the real problem was the significant variations in consumer protections among the various states. Franchini noted that the ACLI survey found that there had been an average of 101 market conduct actions among the companies responding to the survey, but he noted that many of these were just inquiries. He said that in the past two years New Mexico has conducted only two targeted market conduct examinations both of which involved questionable policyholder treatment that was subsequently corrected.
Surplus Lines Insurance Reform: Keiser noted that the NAIC had developed NIMA as an alternative to SLIMPACT, an interstate compact developed by NCOIL which has been enacted in nine states. [Ten states are needed in order to activate the premium tax clearinghouse.] Both approaches to surplus lines reform were developed to comply with NARAB II. NIMA does not require legislative action, whereas SLIMPACT does. NIMA is an agreement that states can enter into with each other and 12 states have joined. Doak told the legislators that Oklahoma is taking a wait-and-see approach. Kitzman stated that Texas has also not signed on to either proposal, noting that in Texas the collection of premium taxes is the responsibility of the comptroller so it would be comptroller's decision as to whether or not to participate. She stated that Representative Craig Eiland (TX) had introduced SLIMPACT in 2010 and that it did not pass. She said that Texas had problems with the fundamentals of NIMA which has a very complex tax allocation formula but she understands that amendments are possible. Franchini stated that New Mexico was one of the nine members of SLIMPACT and he was hoping that a compromise could be worked out with NIMA states.
Representative Bob Damron (KY) stated that he did not understand why the regulators would oppose SLIMPACT, noting that the commissioner of any member state has a vote on the compact council. Yanek stated that the NAIC has never taken a position in support of either approach; that some members had asked for help in developing NIMA and staff had provided technical assistance but the NAIC did not oppose states joining SLIMPACT. Damron replied that he had heard the commissioners do not support SLIMPACT and he characterized the opposition as petty. Keiser stated that he believed some states were being lobbied by the NAIC to not support SLIMPACT. Yanek stated that this was not happening.
International Regulatory Developments: Kitzman stated that Texas is the vice chair of the International Insurance Relations (G) Committee at the NAIC and that Danny Saenz, an associate commissioner with the Texas insurance department, is very active on "G" Committee which is working very closely with the IAIS on the development of its Insurance Core Principles.
FIO/FACI: Representative Ron Crimm (KY) expressed his opposition to the existence of the Federal Insurance Office (FIO), stating that it was not needed and that the states were capable of performing all its functions and he lamented the amount of money that would be wasted operating FIO. Kaiser had heard FIO Director Michael McRaith speak at the NAIC and said that while his comments were very subtle, he got the strong impression that McRaith was speaking about dual regulation. Doak opined that dual regulation was going to happen and he lamented the massive costs it would mean for consumers who he believes want to be able to interact with local representatives to address their insurance needs.
Contingent Annuities: Yanek stated that the NAIC has just begun to examine this issue so she was not prepared to explain what a contingent annuity is; however, the NAIC Life Insurance (A) Committee has created a working group that will be chaired by New Jersey to determine whether this product is an annuity or a financial guarantee, whether there is a need for the product, whether there should be any reserving issues, and whether there were any consumer issues.
Reinsurance Collateral: Kitzman reported that during the NAIC national meeting held two weeks ago in National Harbor Maryland, Plenary had adopted a revised Credit for Reinsurance Model Law and Regulation which alters the regulation of collateral requirements for non-US reinsurers. The revised law authorizes the domiciliary state of the ceding insurer to evaluate whether the jurisdiction in which the non-US reinsurer is domiciled has a solvency regulatory system that is equivalent to that required in the US and to determine the collateral level, if any, that non-US reinsurers must post, based upon a schedule provided in the regulation. The new model law permits, but does not require, every other state in which the ceding insurer does business to accept the determination of the domiciliary state.
Damron asked what would happen if a state legislature does not enact the revised law. Kitzman replied "that would be a problem." Damron asked whether a state that did not enact the law or required higher collateral would be sanctioned. He was concerned that some state legislatures might not enact the law because there is industry opposition. Kitzman said that everyone shares the concern but that some states have already adopted this approach on their own. She added that the revisions place an additional burden on states to do a more robust review of the reinsurers and the jurisdictions from which they operate and that the NAIC will maintain a list of qualifying reinsurers and will monitor their financial condition. She also noted that under Dodd-Frank the domiciliary state of the ceding company is the state that has the final and exclusive say on whether credit for reinsurance will be granted. Damron noted that the law places a tremendous amount of political risk on the domiciliary state’s commissioner.
Yanek stated that the Credit for Reinsurance Model Law and Regulation are part of the accreditation standards and it is her understanding that the revisions will be considered for incorporation into the standards on an expedited basis. However, she noted under the revised standard no state would be required to reduce its reinsurance collateral requirements and that, under the accreditation standards, a state is only required to demonstrate that its laws and administrative practices result in solvency regulation that is similar in force and no less effective than the standard.
At the Executive Committee meeting, Matthew Wulf (RAA) made a brief presentation to clarify the changes that have been made to the reinsurance collateral rules. He stated that the RAA, the AIA, and the international trade organizations all supported the amendments to the model and regulation and that NAMIC and the PCI did not oppose them. Under the current law credit for reinsurance is recognized if the reinsurance is provided by a licensed or credited reinsurer or collateral is posted equal to the amount at risk.
Wulf said the amendment will provide a third way. In determining the collateral requirement for a non-US reinsurer, the amended law gives the domiciliary insurance commissioner of the ceding insurer discretion to consider the quality of the regulation of the jurisdiction out of which the reinsurer operates as well as the ability of the reinsurer to fulfill its obligation. He stated that the NAIC will maintain a list of certified regulatory jurisdictions but that a Commissioner can allow a reinsurer from a jurisdiction that is not on the list to qualify for a lower collateral requirement provided the Commissioner can justify his/her decision based upon a review of that jurisdiction. To put the issue in perspective, Wulf stated that Florida, which has had this system in place for a number of years, has only approved 16 jurisdictions.
Life Insurance Financial Planning Committee
Model Unclaimed Life Insurance Benefits Act: By way of background, Representative Bob Damron (KY) told the Committee that 36 state treasurers had entered into an agreement with John Hancock regarding its handling of unclaimed death benefits. He stated that this issue had started with an investigation by the Florida insurance department, which was quickly followed by an investigation by New York, after it was discovered that John Hancock had been using the Social Security Death Master File (DMF) to identify annuitants that had died so that the company could cease making annuity payments but it was not using the DMF to search for deceased policyholders of life insurance policies. Instead the company continued to hold the policy proceeds and earn investment income until the policyholder would be presumed dead based upon mortality tables (when the policyholder would be well over 100 years old). The unclaimed benefits are eventually turned over to the state based upon state escheat laws, whereupon the state conducts its own search to try and locate the owners of the unclaimed property. Under the agreement John Hancock agreed to search the DMF to identify deceased policyholders and to notify their beneficiaries of their entitlement to the proceeds of the life insurance policies.
At NCOIL’s Newport meeting, Florida Insurance Commissioner Kevin McCarty had encouraged NCOIL to develop a model law. Damron expressed concern that the NAIC had contracted with an outside company to conduct audits of life insurance companies in return for a percentage of the unclaimed benefits found to be owed. Damron stated that his proposed model was based upon the agreement entered into with John Hancock but noted that he had recently submitted amendments to his proposal which would require a waiver of the 30-day rule in order to be considered by the Committee at this meeting.
His original proposal would have only required those life insurers that currently use the DMF to search out annuitants that had passed away to search their files against the DMF for deceased life insurance policyholders. The amendment would expand the search requirement to all life insurers. The proposal requires the insurers to run the DMF against their existing policyholders on at least a quarterly basis; to conduct a search for beneficiaries of those policyholders identified as deceased, and to notify the beneficiaries was able to locate so that they may submit their claims.
The Committee received comments supporting the proposal from a representative of the West Virginia Treasurer’s office and from Brendan Bridgeland, an NAIC funded insurance advocate. Bridgeland told the Committee that, in addition to the proceeds from insurance policies, John Hancock was also holding proceeds from its demutualization for over 400,000 "lost" policyholders and he suggested that many of these people could be located using a readily available change of address database.
John Gerni (ACLI) also supported the proposal, but said that state unclaimed property laws needed to be modernized. He had submitted a letter with suggested amendments to the proposed model which Representative George Keiser (ND) put on the table for consideration. Jim Hodges (NALC), a former South Carolina governor, stated that the requirement to run the DMF would pose a financial burden for his members all of whom are small to midsize life insurers who sell policies with low face values.
John Camillo (LIC) stated that the 72 companies making up his organization do not sell annuities and therefore do not use the DMF. He requested that the law be made prospective and apply only to new policies because otherwise the cost of running the DMF could jeopardize the financial solvency of some of his members. He stated that an insurer's obligation to investigate and pay the proceeds of a policy to a beneficiary arises only after a claim is filed. This comment generated skeptical questions from members of the Committee, one of whom commented that Camillo's interpretation of an insurer’s duty was "very clever".
There was a discussion of how a life insurance policy is priced based upon Camillo's claim that the pricing is based on a combination of expected mortality and the number of expected claims. The Michigan Insurance Commissioner, Kevin Clinton, testified that he was an actuary and that he had never heard of any life insurer pricing its policies based upon expected claims rather than on mortality. He also noted that during the interim period of years between the death of the policyholder and the time when the proceeds of the policy must be turned over to the state, the insurer gets the benefit of the float and earns significant investment income. He also stated that if a life insurer, as Camillo claims, does not have a legal obligation under the terms of the policy to search for deceased policyholders and notify their beneficiaries, it certainly has a moral obligation.
The Committee ran out of its allotted time so its chairman, Senator Mike Hall (WV), announced that the meeting would resume at 5 PM. Interested parties met with Damron during the interim and developed a revised proposed model.
When the Committee reconvened, the 30-day rule was waived so that the latest version of the proposal could be considered. Gerni stated that conceptually he agreed with the latest version but he asked for an opportunity to circulate it for comments by his members and to submit comments at the spring meeting. Damron reviewed the changes to his proposal and, after some discussion of Gerni’s request for a delayed adoption, the Committee adopted the amended version of the proposed model, but agreed not to hold the final vote until the spring. However, when the Executive Committee met on Sunday, the proposed model was adopted.
Representative George Keiser (ND) stated that he planned to propose an amendment to this new model in the spring. His amendment would extend the requirement to use the DMF to the state unclaimed property offices in order to identify unclaimed property turned over to them pursuant to state escheat laws.
Pre-Need Funeral Insurance Fraud: The Committee heard a brief presentation given by Delegate Harvey Morgan (VA) on abuses in the pre-need insurance market which is sold mostly by funeral directors. Hall stated that the Committee would look into this issue. Morgan had declined to run for another term in Virginia so this was his last meeting.
The Committee adopted its charges but did not have time to consider the other items on its agenda.
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