NCOIL, the National Council of Insurance Legislators, met in Atlanta last weekend to discuss, among other things, “legislative solutions to unjustified premium increases (1).”
NCOIL is an organization made up of state legislators interested in insurance and financial matters, many of whom serve on related committees in their home states. The goal of the organization is to inform state legislators by creating a venue for interaction and education across state lines. The organization meets three times a year in open sessions that allow the legislators to hear from consumers, industry executives, and regulators.
The organization develops model laws that can be adopted on a state-by-state basis, and part of its published goal is to “preserve the state jurisdiction over insurance” and “speak out on Congressional initiatives that attempt to encroach upon state primacy in overseeing insurance.” The organization provides a needed open setting for the interaction of ideas designed to “improve the quality of insurance regulation (2).”
In its November 2017 meeting, Assemblymember Pamela Hunter of New York, brought up Insurance Regulation 210, a New York regulation we wrote about back in September of 2017. The regulation requires carriers raising expenses or cost of insurance in life and annuity policies to notify the New York State Department of Financial Services at least 120 days prior to “an adverse change in non-guaranteed elements” and to notify consumers within 60 days (3). The leadership of NCOIL decided to continue the conversation Hunter started at their spring meeting, and on March 3rd, the Life Insurance & Financial Planning Committee of NCOIL met.
Winter storm Riley kept Ms. Hunter from attending the session, which was chaired by Representative Deborah Ferguson, who serves on the House Insurance and Commerce Committee in her home state of Arkansas.
The session opened with a statement by Darwin Bayston of The Life Settlement Association who pointed out there are 142 million life insurance policies in force with $12.3 trillion of death benefit, and stated that the current cost of insurance increases are harming many consumers. Darwin focused on the older population of insureds who had paid premiums for many years only to find that cost increases now made their policies unaffordable.
In my testimony I went over two of the many cases that we have reviewed for trustees at ITM TwentyFirst, where well over $400 million of trust owned life insurance (TOLI) death benefit administered on our Managed Service platform has been affected by the cost increases. I highlighted the problem of trustees, who have a fiduciary responsibility to maximize the asset in the trust, being forced to make decisions that deliver much less benefit to the trust than was expected. I also reviewed the many comments I had received from the public, including advisors who expressed dismay that their clients were subject to cost increases of 150 to 200 percent and consumers who cancelled policies because of COI increases and felt they had been “scammed” – their words, not mine.
Steven Sklaver, an attorney at Susman Godfrey LLP spoke next. Sklaver currently has multiple cases filed against carriers who have raised COI on policies and was “handcuffed” in his presentation as a result. However, he did contrast what is occurring in New York state versus the rest of the country, because of the New York regulation, by calling attention to a situation where a carrier who raised rates elsewhere decided not to raise rates in New York. In his testimony, he questioned whether the carriers could be raising rates across an entire class, as required, if NY state insureds were left out. He also pointed out an issue we have seen at ITM TwentyFirst – carriers not providing in force illustrations on policies in the grace period, a major burden for those of us attempting to help policyholders manage a distressed policy.
Kate Kiernan, Vice President, Chief Counsel and Deputy at the American Council of Life Insurers, spoke for the council, expressing their belief that there was no need for any new regulations concerning cost of insurance increases, either in New York or any other states.
Members of the committee had several inquiries. Representative George Keiser from North Dakota asked Mr. Sklaver several pointed questions, and disputed Steven’s assertion that the carriers were not raising rates across an entire class as required, if New York were left out of the increases.
The chairwoman, Representative Deborah Ferguson, asked me if there was anything in a sales illustration that might alert a consumer to a cost of insurance increase in the future. I informed her that the illustration is not the contract, and in fact, a poor tool to explain the policy. Though the illustration has language that indicates all assumptions could change, there is nothing in the illustration that can predict future changes in the policy.
Senator Bob Hackett from Ohio, a veteran of the financial services industry, opined that cost of insurance increases center more around tracking the policy with in force ledgers than the sales illustration, noting that he reviews the in force ledgers with his clients. I agreed, but explained that though the cost of insurance in a policy will increase as we age, the cost of insurance increases that were the topic of discussion were beyond the natural rise, and resulted in carrying costs on policies to double or even triple overnight.
Our session, the first of the day, was brought to a halt by the vice chairman, Representative Joe Hoppe of Minnesota, who stated that he thought they should wait to see how it would “play out” in the court system before making the decision to move ahead. With a tap of the gavel, Ms. Ferguson brought the meeting to an end with the committee agreeing to not move forward to develop a model act – at least not now.
We have written often in the past about the cost of insurance increases we have seen in life insurance, including at least one article outlining some possible causes. Over the next year or so as the courts work through the various cases brought against the carriers and market interest rates adjust from the abnormally low rates of the last decade, the story will evolve. We will continue to follow up.
- NCOIL to Discuss Problems Facing Life Insurance Premium Increases, NCOIL News Release, January 23, 2018
- NCOIL website, http://ncoil.org/history-purpose/
- NY State Department of Financial Services, 11 NYCRR 48, (Insurance Regulation 210)
DID PA HAVE REPRESENTATIVES AT THE CONFERENCE?
Bernard: I honestly do not know. THANKS
Thanks for this post. We should note that the illustrations showed a worst case scenario under guaranteed maximum costs and minimum credit rates. However, these factors are hard to discern and reasons allowed to change factors are disputed.
A related problem is that UL is marketed as permanent life insurance with an adjustable benefit, but guidance is not readily provided on how to adjust the benefit to keep the policy in-force. To help rescue policies that will go past the point of recovery under guideline limits, companies should amend policies to allow an exchange to a similar policy under CVAT. This would allow premiums to be paid to emphasize cash value in the policy whether or not COI rates have changed.