Enacts the life insurance market revitalization act

Part A of this Act adds a new § 201 of the insurance law to establish a State Insurance Advisory Board within the Department of Financial Services. The Advisory Board will consist of fifteen members who will be appointed by the Superintendent of the Department, including nine representatives of domestic insurance companies, five representatives of foreign insurance companies and one consumer representative. To the extent practicable, the membership should reflect a range of size and geographic location within the state. The Board should meet at least three times annually and will consider and recommend to the Superintendent: 1) ways to maintain and grow the insurance industry of the state, particularly focusing on the domestic insurance industry; 2) ways to encourage insurers to offer a diversity of affordable insurance & financial products throughout the state; and 3) amendments to or new laws, regulations & guidance, or the repeal thereof, in furtherance of these goals.

Part A also amends § 206 of the financial services law to remove the authority of the state to assess regulated financial institutions for the indirect funding of the Department of Financial Services. The deletion of this language will limit the state's authority to assess New York-based insurers and banking institutions for the funding of the Department to only direct expenses and will disallow future assessments for the funding of indirect expenses, such as programs and services administered by other state agencies (sub-appropriations). This provision will take effect for each fiscal year beginning on and after April 1, 2017.

Part B of this Act provides for amendments to §§ 30l, 308 and 311 of the insurance law to establish greater administrative procedures for the imposition of guidance, regulations, inquiries and examinations by the Department of Financial Services.

The amendment to § 301 of the insurance law provides that, when imposing a regulation, rule or guidance, the Superintendent of the Department of Financial Services must consider whether or not such proposal will cause undue deleterious economic effect or have an overly burdensome impact upon the licensed entity upon which the rule could be imposed, particularly relating to the domestic insurance industry. The Superintendent must also consider and determine whether or not the proposal will negatively impact the affordability or availability of a product being offered or being considered for offering by the licensed entity. The assessment of the proposed regulation, rule or guidance should be set forth in writing and should include the purpose of, necessity for and expected benefits to be derived, as well as the costs associated with implementing the proposal by the regulated entity and whether or not it could negatively impact the pricing or availability of a product being offered by the licensed entity. A copy of the written assessment should be provided to the licensed entity prior to its proposal pursuant to the state administrative procedure act and prior to the issuance of any guidance.

Similarly, the amendment to § 308 of the insurance law would require the Superintendent of the Department of Financial Services to consider and determine, in writing, whether or not a proposed inquiry authorized by this section of a licensed entity will cause undue deleterious economic effect or have an overly burdensome impact on the regulated person intended for receipt of the inquiry. The assessment of the proposed inquiry should be set forth in writing and should include the purpose of, necessity for and expected benefits to be derived, as well as the estimated costs associated with responding to the inquiry by the regulated entity, including but not limited to human resource, technology or administrative costs. The written assessment should be provided to the recipient of the inquiry prior to its imposition.

The amendments to § 311 of the insurance law contained in this Part will place administrative procedures around the process of the examination of insurance companies. The amendments establish that a company examination should be considered closed when the report on examination is adopted by the Superintendent of the Department of Financial Services. The legislation also requires that a report on examination must include information regarding whether any fine or regulatory action will be imposed as a result of the examination and the amount of the fine or nature of the regulatory action. These provisions also provide that a new examination of an insurer cannot commence unless and until all previous examinations of such insurer have been closed.

Part C of this Act amends § 3201 of the insurance law to provide that discretion in the review of products issued by life insurers by the Department of Financial Services (DFS) should be based upon specific provisions of laws or regulations. Existing law provides DFS staff reviewing life insurance policy forms with broad discretion to disapprove provisions, sometimes in an arbitrary and capricious fashion, which can result in less product availability at higher prices for life insurance products in New York. Part C also provides that war and travel exclusions on life insurance policies in New York can be displayed in bold letters, rather than red ink.

Part D of this Act amends §§ 3209, 2123 and 4226 of the insurance law to facilitate direct response solicitation of life insurance policies in New York, including internet commerce. Section 3209 of the insurance law is amended to adjust the timing for delivery of certain policy disclosures to the applicant and to remove the requirement for the delivery of preliminary information. Such information, which is only required in lieu of a policy illustration, is often redundant of other information provided regarding the policy and can be inaccurate, as the policy provisions and pricing are often adjusted from point of sale to delivery of the policy. This type of information is also not required in any other state. Sections 2123 and 4226 of the insurance law are amended to require that the rules regarding the replacement of one life insurance policy or annuity contract with another in a direct response solicitation circumstance should be consistent with the NAIC Life Insurance and Annuities Replacement Model Regulation.

Part E of this Act amends § 4217 of the insurance law to refine the rules related to the submission of reserving reports that are required under current law from life company appointed actuaries. The amendments would: 1) permit the appointed actuary to aggregate life, annuity and health business for purposes of performing asset adequacy testing in support of his actuarial opinion on reserve adequacy; and 2) restrict the Superintendent from imposing any assumptions or other additional standards to be used by the appointed actuary in forming his actuarial opinion beyond those prescribed by regulation.

Additional actuarial standards that go beyond the current law should only be imposed on life companies via Regulation, subject to proposal and comment, and not by arbitrary Guidance. This is especially important since overly-conservative reserving requirements can result in higher product pricing and less product availability for life insurance products sold in New York.

Part F of this Act amends § 305 of the education law by adding a new subdivision 53-a that authorizes the Education Commissioner to develop a curriculum of instruction in financial literacy and personal finances that will be required for completion by pupils in grades 11 and 12. New York citizens should be provided with fundamental education on financial literacy so that they can be armed with the knowledge they will need to make financial decisions as adults, including the value of financial protection insurance products and the importance of providing for their own retirement security.

Justification

The products offered to the people of this state by life insurance companies offer important financial protection in crucial times of need. Life insurance policies provide families and businesses with essential benefits that allows them to carry on after a personal loss. Annuities provide people with regular income in retirement and allows them to provide for their own retirement security. Disability income insurance protects people from a loss of some or all of their income resultant from an accident or infirmity that keeps them from work. The benefits derived from these types of products provide the citizens of this state with vital financial proceeds in times of need. This protection allows them to continue to meet their financial obligations, such as keeping up on rent or mortgage payments, paying for a family member's education or paying for daily expenses in retirement, following a personal loss, an illness or accident or a loss of employment income.

Despite their importance, these types of insurance products are not required as a matter of law or policy, as is the case with other types of insurance products such as automobile or homeowners insurance. People who purchase these products are choosing to do so with discretionary income and competing priorities and are also often lacking a clear understanding of the importance of the financial protection the products provide. It is in the interest of this state to assist in the promotion of these products, which provide its citizens with the tools to protect their own financial futures. In turn, the purchase of these products by the citizens of this state alleviates or reduces their need for public assistance in times of need, which decreases financial stress on the state.

The economic downturn of 2008, coupled with a challenging regulatory environment, particularly in New York, and a decreased focus on the encouragement of financial literacy by the people of this state has negatively impacted sales of these financial protection products, which is to the detriment of the citizens of this state. It is, therefore, in the state's best interest to effectuate amendments to the insurance, financial services and education laws of this state that will assist in revitalizing the market for life insurance products and will, in turn, inure to the benefit of the people of this state.

Legislative history

New bill.

Effective date

Parts A through E of the Act will take effect immediately. Part F will take effect on the first of September in the calendar year commencing after the date it shall have become a law, provided that the Commissioner of Education must promulgate or repeal any rules or regulations necessary to implement the provisions of this Part.