Enacts the Insurance Uniformity and Accreditation Act

Part A of the legislation establishes a new Article 82 of the insurance law to provide that the state of New York will join with other states as a member of the Interstate Insurance Product Regulation Compact and Commission. The Compact and Commission, which is fully operational with 44 member jurisdictions, provide a single point of filing for review and approval of certain life insurance policies or contracts for which the Commission has developed a product standard. In joining the Compact, New York regulators would become a part of the six-member managing committee of the Commission. This legislation also provides a process where New York regulators may opt out of any particular product standard, if they deem it not to be in the best interest of the policyholders of the state.

Part B of the legislation provides for amendments to §§ 4217, 4218 and 4221 of the insurance law to incorporate amendments made to the NAIC Standard Valuation Model Law by that organization in 2009. These amendments provide for a Principles-Based Reserving (PBR) model that would allow the Department of Financial Services to implement new reserve methods and requirements for life insurers. The new reserving model will calculate and report reserves held to pay future claims on life insurance, annuities, and accident and health policies using a principles-based approach with a formulaic floor. The revised Standard Valuation Model Law will not become operative until it is enacted in at least 42 states and U.S. territories that account for at least 75 percent of life insurance premiums in the U.S. Given the current count of states that have enacted the 2009 Model Law provisions to date, the PBR system for life insurance reserving is likely to become operative in 2017. These amendments will need to be in place in New York when the system becomes operational, in order for New York domestic life insurers to not be placed at a competitive disadvantage. Part C of the legislation amends § 7120 of the insurance law to incorporate into New York law the balance of the NAIC Redomestication Model Law. This NAIC Model establishes the rules for an orderly transfer of the corporate location of an insurance carrier both into and out of the state.

Part D of the legislation amends §§ 2123 and 4226 of the insurance law to facilitate and require the promulgation of the NAIC Life Insurance and Annuities Replacement Model Regulation by the New York Department of Financial Services. This NAIC Model Regulation establishes certain disclosure to be provided to applicants for a life insurance policy or annuity contract when the applicant is cashing in or using funds from one policy or contract to pay for a new policy or contract.

Part E of the legislation amends Articles 15, 16 and 17 of the insurance law to bring New York law into further conformance with the NAIC Risk Management and Own Risk Solvency and Assessment (ORSA) Model Act. This NAIC Model requires that certain insurance carriers in New York must perform an annual ORSA and submit to the Department of Financial Services an annual ORSA summary report, which is an assessment of the risks to the insurer and its enterprise of companies within a system. These amendments add the ORSA requirement to New York law and provide the rules for the systematic sharing of such information with other state regulators, the NAIC and others.

Justification

The regulatory framework for providing oversight of the insurance industry in the United States is largely unique in comparison to the other segments of the financial service industry in this nation and most insurers and the rest of the financial services industry in foreign jurisdictions. Insurers in the United States are governed under a sometimes complex regulatory structure overseen by the states. This state-run insurance regulatory system has essentially functioned well over recent history in ensuring that: 1) the insurance industry remains solvent; 2) consumers of insurance products are appropriately served with affordable, available insurance products and; 3) the oversight of the insurance industry, particularly the domestic industry in each state, is balanced enough to provide the industry with the ability to grow their businesses and their market in the state. These goals of the state-run insurance system have been largely met over the years when states follow the uniform state laws and regulations established predominantly by the National Association of Insurance Commissioners (NAIC)

The NAIC has been in existence since 1871 and is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the fifty states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate regulatory oversight. The NAIC also functions in close collaboration with state legislators who represent and support the National Conference of Insurance Legislators (NCOIL). The state-run insurance marketplace has benefited from the work of the NAIC and NCOIL, which establish uniform state laws, regulations and guidance. This framework provides the basis for an insurance regulatory environment that it largely consistent among the states, which supports the goals of a state-run regulatory system. It provides states with a uniform structure for overseeing the state-run insurance system, which benefits the entire insurance marketplace.

In 2013, the Federal Insurance Office of the United States Treasury issued a mandated study entitled "How to Modernize and Improve the System of Insurance Regulation in the United States." That study recognized the efforts of the NAIC by concluding support for the implementation of several uniform state laws and regulations established by the NAIC, including a recommendation that all non-participating states should join the Interstate Insurance Product Regulation Compact (IIPRC). In 1989-90, the NAIC adopted certain financial regulation standards that form the basis for a formal accreditation program that relies on state certification by other regulators (i.e., peer review) and that requires risk-focused financial surveillance, including on-site examinations, as well as implementation of certain solvency-related model laws, rules and guidelines. The New York Department of Financial Services is one of the jurisdictions currently accredited by this NAIC program.

It is, therefore, in the interest of this state to implement into New York law several provisions of NAIC Model Laws or Regulations, some of which are or may be necessary for New York to maintain their NAIC accreditation, and others of which serve to further the public policy interest for insurance regulation in the State of New York.

Legislative history

New bill.

Effective date

Parts A and D of the Act will take effect 180 days after enactment. Parts B, C and E of the Act will take effect immediately.