senate Bill S5024

Relates to replacement of individual life insurance policies or annuity contracts

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 02 / May / 2011
    • REFERRED TO INSURANCE
  • 04 / Jan / 2012
    • REFERRED TO INSURANCE
  • 04 / Jun / 2012
    • 1ST REPORT CAL.996
  • 05 / Jun / 2012
    • 2ND REPORT CAL.
  • 06 / Jun / 2012
    • ADVANCED TO THIRD READING
  • 20 / Jun / 2012
    • PASSED SENATE
  • 20 / Jun / 2012
    • DELIVERED TO ASSEMBLY
  • 20 / Jun / 2012
    • REFERRED TO INSURANCE

Summary

Relates to replacement of individual life insurance policies or annuity contracts; amends provisions relating to misrepresentations and misleading statements; requires replacements regulations be consistent with policies of the national association of insurance commissioners.

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Bill Details

See Assembly Version of this Bill:
A10537
Versions:
S5024
Legislative Cycle:
2011-2012
Current Committee:
Assembly Insurance
Law Section:
Insurance Law
Laws Affected:
Amd §§2123 & 4226, Ins L

Sponsor Memo

BILL NUMBER:S5024

TITLE OF BILL:

An act
to amend the insurance law, in relation to the replacement of individual
life insurance policies or individual annuity contracts of any insurer

PURPOSE:

The purpose of this bill is to amend §§2123 and 4226 of the insurance
law to establish that the regulation governing replacements of life
insurance policies or annuity contracts with another policy or
contract should be consistent, to the greatest extent practicable and
in the public interest, with the replacements regulation adopted by
the National Association of Insurance Commissioners (NAIC).

SUMMARY OF PROVISIONS:

This bill amends §§2123 and 4226 of the insurance law so as to
continue to establish that insurers and producers are prohibited from
making misleading or incomplete representations of any policy or
contract for the purpose of inducing a customer to lapse, forfeit or
surrender a policy or contract. This bill further provides that the
superintendent of insurance/financial services shall establish rules
for the replacement of life insurance policies and annuity contracts
and that those rules shall be, to the greatest extent practicable and
in the public interest, consistent with the replacement regulation
adopted by the NAIC, as amended from time to time.
This bill would also amend both sections to remove the current
requirement that the· replacement rules must contain a requirement
that policies or contracts being contemplated for replacement in New
York can only be completed after a complex. cost comparison of the
replaced policy or contract to the replacing policy or contract.

JUSTIFICATION:

The bill makes amendments to sections 2123 & 4226 of the insurance law
to provide that the regulation governing replacements of life
insurance products in this state should be consistent
with the NAIC Life Insurance and Annuities Replacements Model
Regulation and to remove the requirement that there must be a
detailed cost comparison of products before you can replace one life
insurance policy or annuity with another one. These amendments leave
in place the current provision of law that prohibits insurers and
producers from using a misleading or incomplete representation to
induce a customer to lapse, forfeit or surrender a policy or contract.

The New York Insurance Department has used the existing provisions of
law as the basis for the implementation of the very complicated
Regulation 60 governing replacements of life insurance policies and
annuity contracts. Since its implementation in 1998, Regulation 60
has not proven to work very well because, in some instances, it
requires the comparison of products that are not at all similar (such
as a life policy to a deposit-type annuity contract, or vice versa)
and, in every instance, results in a lengthy delay (sometimes up to a


month) in completion of the transaction. This delay is due to the
fact that the producer selling the new policy or contract and the
customer seeking to buy it must wait for the necessary information
related to the product being replaced, so that the producer can do
the requisite comparison. Pursuant to the current regulation, the
information related to the policy or contract to be replaced is
supposed to be provided by the company whose policy or contract is
being contemplated for replacement -- something that they are not overly
motivated, but are compelled by the regulation, to do.

This delay has not always served the customer well. In some instances,
they have been unable to timely complete a transaction on an
interest-sensitive product and have, as a result, received a final
product with less favorable terms. During the recent economic
down-turn, consumers who were seeking to replace a variable annuity
product with a fixed one were forced to wait a month to consummate
that replacement, resulting in an even steeper decrease in the value
of their variable annuity before the transaction could be completed.
In other, less common instances, they may have had a change in their
health status or even passed away while waiting to purchase a policy
or contract with better terms than the policy or contract they were
seeking to replace. Often-times, these delays are totally unnecessary
because the customer is fully aware of the details of their
transaction and are anxious to complete their transaction.

New York is the only state in the nation that requires this level of
detailed comparison of one product to another. The vast majority of
the states have implemented a version of the NAIC Model on
Replacements, which requires insurers to provide simple disclosure of
factors that you should consider when replacing one life or annuity
product with another. This simple disclosure model has proven to be
sufficient to deter inappropriate replacements in other states.

If this bill were to be enacted, New York could amend their regulation
on replacements so that it is consistent with the NAIC Model
disclosure requirement and the practice in most other states.
New York law would continue to prohibit misrepresentations by
producers or insurers for the purpose of inducing the surrender of a
policy or contract, as well as providing for a sixty-day free look
period after the replacement of a policy or contract with a new one
so that customers having buyer's remorse could reverse their
transaction. New York would also continue to require life insurers
and producers to conduct a review and determination as to the
suitability of every annuity transaction, including replacement
transaction, before an annuity purchase is made (Regulation 187). All
of these requirements would ensure the proper balance so that New
York consumers are being protected from inappropriate sales, yet are
still able to complete a desired transaction in a timely fashion.

LEGISLATIVE HISTORY:

New Bill.

FISCAL IMPLICATIONS:

None.


EFFECTIVE DATE:

This act will take effect on the 180th day after it shall have become
a law.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5024

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 2, 2011
                               ___________

Introduced  by  Sen.  SEWARD -- read twice and ordered printed, and when
  printed to be committed to the Committee on Insurance

AN ACT to amend the insurance law, in relation  to  the  replacement  of
  individual  life insurance policies or individual annuity contracts of
  any insurer

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  The  section  heading and subsections (a), (b) and (c) of
section 2123 of the insurance law,  subsections  (a),  (b)  and  (c)  as
amended  by  chapter  540 of the laws of 1996, paragraph 3 of subsection
(a) as added by chapter 616 of the laws of 1997, the  opening  paragraph
of paragraph 3 of subsection (a) as amended by chapter 13 of the laws of
2002, are amended to read as follows:
  Misrepresentations[,]   AND   misleading  statements  [and  incomplete
comparisons].
  (a) (1) No agent or representative of any insurer  or  health  mainte-
nance  organization  authorized  to  transact  life,  accident or health
insurance or health maintenance organization business in this state  and
no  insurance  broker,  and no other person, firm, association or corpo-
ration, shall issue or circulate or cause or  permit  to  be  issued  or
circulated,  any illustration, circular, statement or memorandum misrep-
resenting the terms, benefits or advantages of any policy or contract of
life, accident or health insurance, any annuity contract or  any  health
maintenance  organization  contract, delivered or issued for delivery or
to be delivered or issued for delivery, in this state, or shall make any
misleading estimate as to the dividends or share  of  surplus  or  addi-
tional  amounts to be received in the future on such policy or contract,
or shall make any false or misleading statement as to the  dividends  or
share  of  surplus  or  additional  amounts  previously paid by any such
insurer or  health  maintenance  organization  on  similar  policies  or
contracts, or shall make any misleading representation, or any misrepre-

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11187-01-1

S. 5024                             2

sentation,  as  to the financial condition of any such insurer or health
maintenance organization, or as to the legal reserve system  upon  which
such insurer or health maintenance organization operates.
  (2) No such person, firm, association or corporation shall make to any
person  or  persons  any incomplete [comparison] OR MISLEADING REPRESEN-
TATION of any such policies or contracts of any  insurer,  insurers,  or
health maintenance organization, for the purpose of inducing, or tending
to  induce,  such  person  or persons to lapse, forfeit or surrender any
insurance policy or health maintenance organization contract.
  (3) Any replacement of individual life insurance policies or  individ-
ual  annuity  contracts of an insurer by an agent, representative of the
same or different insurer or broker shall conform to  standards  promul-
gated  by  regulation  by  the  superintendent. Such regulation shall BE
CONSISTENT, TO THE GREATEST EXTENT PRACTICABLE AND IN THE PUBLIC  INTER-
EST,  WITH  THE  REPLACEMENTS REGULATION ADOPTED BY THE NATIONAL ASSOCI-
ATION OF INSURANCE COMMISSIONERS, AS AMENDED  FROM  TIME  TO  TIME,  AND
SHALL ALSO:
  (A) specify what constitutes the replacement of a life insurance poli-
cy or annuity contract and the proper disclosure and notification proce-
dures to replace a policy or contract;
  (B)  require  notification  of the proposed replacement to the insurer
whose policies or contracts are intended to be replaced; AND
  (C) [require the timely exchange of illustrative and cost  information
required  by section three thousand two hundred nine of this chapter and
necessary for completion of a comparison of the  proposed  and  replaced
coverage; and
  (D)] provide for a sixty-day period following issuance of the replace-
ment policies or contracts during which the policy or contract owner may
return  the policies or contracts and reinstate the replaced policies or
contracts.
  (b) [Any comparison of the policies or contracts of any such  insurer,
insurers  or  health  maintenance  organization shall be deemed to be an
incomplete comparison if it does not conform to all the requirements for
comparisons established by regulation.
  (c)] In the determination, judicial or otherwise, of  the  incomplete-
ness or misleading character of any such [comparison] REPRESENTATION, it
shall  not  be  presumed  that  the  insured knew or knows of any of the
provisions, terms or benefits  contained  in  any  insurance  policy  or
health maintenance organization contract.
  S  2.  The section heading and subsections (a), (b) and (c) of section
4226 of the insurance law, paragraph 6 of subsection  (a)  as  added  by
chapter 616 of the laws of 1997, are amended to read as follows:
  Misrepresentations[,]   AND   misleading  statements  [and  incomplete
comparisons] by insurers. (a) No insurer authorized to do in this  state
the business of life, or accident and health insurance, or to make annu-
ity contracts shall:
  (1)  issue or circulate, or cause or permit to be issued or circulated
on its behalf,  any  illustration,  circular,  statement  or  memorandum
misrepresenting the terms, benefits or advantages of any of its policies
or contracts;
  (2)  make  any  estimate of the dividends or share of surplus or addi-
tional amounts to be received on such policies or contracts;
  (3) make any false or misleading statement of the dividends  or  share
of  surplus  or  additional  amounts paid by any such insurer on similar
policies or contracts;

S. 5024                             3

  (4) make any misleading representation, or  any  misrepresentation  of
the  financial  condition  of  any  such insurer or of the legal reserve
system upon which it operates; [or]
  (5)  make  or deliver to any person or persons any incomplete [compar-
ison of] OR MISLEADING REPRESENTATION REGARDING  any  such  policies  or
contracts for the purpose of inducing, or tending to induce, such person
or  persons  to  lapse,  forfeit  or  surrender  any insurance policy or
contract[.]; OR
  (6) replace the individual life insurance policies or individual annu-
ity contracts of an insurer by the same  or  different  insurer  without
conforming to the standards promulgated by regulation by the superinten-
dent.  Such regulation shall BE CONSISTENT, TO THE GREATEST EXTENT PRAC-
TICABLE AND IN THE PUBLIC INTEREST,  WITH  THE  REPLACEMENTS  REGULATION
ADOPTED  BY  THE  NATIONAL  ASSOCIATION  OF  INSURANCE COMMISSIONERS, AS
AMENDED FROM TIME TO TIME, AND SHALL ALSO:
  (A) specify what constitutes the replacement of a life insurance poli-
cy or annuity contract and the proper disclosure and notification proce-
dures to replace a policy or contract;
  (B) require notification of the proposed replacement  to  the  insurer
whose policies or contracts are intended to be replaced; AND
  (C)  [require the timely exchange of illustrative and cost information
required by section three thousand two hundred nine of this chapter  and
necessary  for  completion  of a comparison of the proposed and replaced
coverage; and
  (D)] provide for a sixty-day period following issuance of the replace-
ment policies or contracts during which the policy or contract owner may
return the policies or contracts and reinstate the replaced policies  or
contracts.
  (b)  [Any  comparison of the policies or contracts of any such insurer
or insurers shall be deemed to be an incomplete comparison  if  it  does
not  conform  to all the requirements for comparisons established by the
superintendent by regulation.
  (c)] In any determination, judicial or otherwise, of  the  incomplete-
ness  or  misleading  character of any such [comparison or of] represen-
tation, it shall not be presumed that the insured knew or knows  of  any
of  the  provisions  or  benefits  contained  in any insurance policy or
contract.
  S 3. This act shall take effect on the one hundred eightieth day after
it shall have become a law.

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