Plugged Into Insurance @ Hinman Straub – December 13, 2018

Advertising in New York: DFS Interprets “Extent of Distribution”

As you may be aware, New York Insurance Regulations 34 and 34-A require insurers to maintain at their home offices copies of every accident and health insurance and life insurance advertisement used in the state of New York. In addition, insurers must record in their advertising logs the manner and extent of distribution of these advertisements (along with the form number of any policy advertised). In the past, we believe insurers and the Department of Financial Services (“DFS”) have interpreted the word “manner” to mean the medium and source, e.g., print (N.Y. Times), television (ABC Network), or electronic (Google). We further believe that these entities have interpreted “extent of distribution” to mean the timeframe during which an advertisement was distributed, the anticipated reach of an advertisement, and/or the intended audience for that advertisement.

In an important shift, the DFS Life Bureau has recently interpreted the phrase “extent of distribution” to mean the actual number of distributions of each particular advertisement to the public. This may include, e.g., the number of copies circulated for print advertisements, the number of airings of a television commercial, and the number of clicks on a website advertisement. This is a significant and noteworthy departure from the Department’s prior interpretation, as it appears that insurers must now either keep a running tally of the number of distributions, airings, or web ad clicks for each advertisement used in this state, or be prepared to face alleged violations during their ensuing market conduct examinations.

Please contact Ben Bodner by email or at 518.689.7215 if you have any questions or would like additional information on this topic.

Compliance Issues Surrounding New York’s Replacement Regulation

Few regulations plague New York life insurers like New York Insurance Regulation 60 (“Regulation 60”). While there are replacement rules in other states, Regulation 60 is unique among these regulations and is a frequent source of market conduct violations for many New York life insurers. The principal differences between Regulation 60 and the regulations of other states are the timing of the presentation of the various disclosure documents and the information that must be contained in the documents themselves. These variances make it essential for New York life insurers to remain diligent in examining and monitoring their Regulation 60 processes and procedures in order to avoid compliance concerns.

As a general matter, a Definition of Replacement Form must be completed as part of the individual life insurance or annuity application process. If the transaction will involve a replacement, the producer must then provide the applicant with the Important Notice Regarding Replacement and obtain a signed applicant authorization permitting the producer or the insurer to contact the company whose policy is being replaced in order to obtain the information required to complete the Disclosure Statement. In addition to the signed applicant authorization, a list of all policies proposed to be replaced must be submitted to the carrier whose policy is being replaced, and the producer must provide the replacing carrier with any and all sales material or proposals used in the replacement sale. While the 2015 amendments to Regulation 60 assisted carriers by providing the option of moving the time of delivery of the Disclosure Statement from the time of application to the time of delivery of the policy, there are still a number of compliance issues that arise surrounding the information that needs to be included in the Disclosure Statement. Additionally, there is the “10 day letter” requirement imposed on the carrier replacing the coverage, and the 20 day time period to provide in-force policy information imposed upon the carrier whose insurance is being replaced. All of these requirements, as well as other mandates contained in the regulation, result in various timing, dating and disclosure concerns for New York life insurers attempting to comply with Regulation 60.

From a market conduct perspective, many insurers fail to date stamp documents (another Regulation 60 requirement) and this results in both a violation of the regulation as well as an inability to prove that the proper sequencing of disclosures was observed. Additionally, violations are found where the application, applicant authorization and disclosure statement are all dated on the same day. Perhaps one of the pervasive issues centers around the replacing insurer’s failure to adequately review the Disclosure Statement. Disclosure Statements with missing, inaccurate or incomplete information are extremely common. In this regard, it is important to note that all fields must be completed on the Disclosure Statement and where there is no appropriate response, the field should be completed with “N/A”. However, when “N/A” is provided as a response to a question, there may be a better answer, so it is crucial that the insurer take the time to review each of the responses on the Disclosure Statement to make sure that they will pass regulatory scrutiny. Other frequent violations involve insurer’s failure to maintain proper records, failure to send out the “10 day letters”, and failure to send sales material to the replaced insurer. Monitoring and examining compliance with Regulation 60 procedures is essential given that regulatory fines for noncompliance with the regulation are sometimes in the millions of dollars, and remediation plans can be burdensome in terms of re-training and enhancing and re-filing existing procedures.

Insurers can take a number of steps in an attempt to avoid these compliance issues by having a dedicated Regulation 60 team that focuses on consistent training, quality control and internal audit. The development of detailed workflows and checklists can assist in daily Regulation 60 processing as well as training of employees and producers on an ongoing basis. Additionally, it is very important to have communication and coordination between the field force, new business, internal audit and compliance departments in order to accurately identify lapses in compliance so that these regulatory gaps can be addressed and additional training can be implemented.

Please contact Sandra McDermott by email or at 518.689.7224 if you have any questions or would like additional information on this topic

Permissible Groups in New York

New York Insurance Law (NYIL) Sections 4216(b) (for group life insurance) and 4235(c) (for group health insurance) identify groups to which a group policy may be delivered or issued for delivery in New York.

These permissible groups include “traditional” groups such as employers, labor unions and associations whose eligible members have the same profession, trade or occupation. In addition, other groups are authorized, such as (i) banks, retailers and other issuers of a credit card where the policy insures holders of that card or financial institutions where the policy insures account holders or members of the institution, (ii) an association, other than one comprised of members in the same profession, trade or occupation, and (iii) any other group (i.e. a “discretionary group”) approved by the Department of Financial Services (DFS). In each instance, the specific criteria regarding the group, as specified in the statute, must be satisfied for the group to qualify as a permissible group which can be issued a group policy in New York.

A number of insurers have asked about the issuance of a discretionary group contract in New York. In order to approve a discretionary group the DFS must find that (i) there is a common enterprise or economic or social affinity or relationship, (ii) the premiums charged are reasonable in relation to the benefits provided, and (iii) the issuance of the policy would result in economies of acquisition or administration, would be actuarially sound, and would not be contrary to the best interest of the public. (see NYIL Sections 4216(b)(14) and 4235(c)(1)(M)).

The DFS has construed the statutory criteria for approving discretionary groups very strictly, and has approved only a small number of such groups since the authority to recognize these groups was provided to the Department more than 30 years ago. One reason for this DFS position is that liberally interpreting the discretionary group authority by approving various proposals would be contrary to the intent of the group statutes to recognize only truly “legitimate” groups.

Certificates covering New York residents under an out of state discretionary group contract are deemed to have been delivered in New York pursuant to NYIL Section 3201(b)(1), and are subject to review and approval under Insurance Regulation 123 (11 NYCRR 59).

Please contact Fred Bodner by email or at 518.689.7296 if you have any questions or would like additional information on this topic.

Limited Benefits Health Products

On November 1, 2018, DFS issued Circular Letter No. 14 (2018), which reminds insurers that limited benefits (i.e., covering some hospital, surgical or medical care) health insurance policies or contacts are not permitted to be issued in New York State. The Circular Letter emphasizes the Department’s commitment to this position by stating that the Department “will continue to fully enforce State requirements vigorously” to ensure that limited benefits health products are not offered in New York unless such products comply with all statutory and regulatory requirements for comprehensive health insurance coverage. Insurers are advised to review their product offerings to determine whether limited benefits health insurance policies or contracts are currently being issued. Insurers with in-force limited benefits health insurance policies or contracts are directed to notify the Department immediately. Any limited benefits products will need to either be discontinued upon renewal or amended to comply with all statutory and regulatory requirements for comprehensive health insurance coverage.

Please contact Leanne Kontogiannis by email or at 518.689.7201 if you have any questions or would like additional information on this topic.