CDS COMPLIANCE NEWS AND NOTES

2012 Regulatory Stirrings

2012-01-24T14:14:00.000-05:00

As state legislators and regulators kick into gear for 2012, here are some recent items of note for disability carriers …. NJ AB 1562 proposal would replace existing language in a current law requiring disclosure of broker commissions in “health insurance policies or contracts” with a more narrow reference to “health benefit plans”, thereby exempting disability policies….MA SB 452 proposal would require a conversion provision in all group health, accident and sickness policies, including STD and LTD .… GA HB 736 wins the award for first 2012 state proposal aiming to ban discretionary clauses in disability policies…. CA Insurance Department just announced the formation of a new unit within the Policy Approval Bureau to focus solely on health insurance policy reviews. The CA DOI also affirmed its commitment to improving its organizational effectiveness. The department is scheduled to meet today with industry representatives regarding ongoing policy form review and approval issues

MA and RI Regulatory News

2011-12-20T12:20:00.000-05:00

A number of disability-related proposals have been languishing on the MA state legislative docket since early 2011. These included prohibitions on Social Security offsets, behavioral health disorder limitations and discretionary clauses in group LTD policies. Now it looks like the MA Joint Committee on Financial Services will hold hearings on these proposals January 24, 2012. For some time, MA has been a state that does not require filing for approval of new group disability products, and has very few regulations for such products. Stay tuned.

On another New England state regulatory note, we want to congratulate Phil Sheridan of the RI Insurance Division for receiving the Arlene Violet Award for Consumer Protection. Phil is one of the truly good people in the insurance regulatory world and a deserving recipient of this award. Way to go Phil!

Notes From The State Filing Desk

2011-11-23T09:46:00.000-05:00

As we head into the holiday season, here are a couple recent news items on the topic of state filings:

CA - The Department of Insurance (CDI) has a hearing scheduled for next week on its proposal to increase filing fees for most product lines. The proposed new fees for group disability filings will more than double the current filing fees for those products. The CDI last month also announced the retirement of the assistant chief counsel who had been overseeing the Policy Approval Bureau for the last several years, and appointed attorney Leslie Tick as the acting chief.

IN - In a letter to the Interstate Compact dated October 27, 2011, Insurance Commissioner Stephen Robertson advised that the Compact’s recently adopted uniform standards for individual disability income products “do not provide sufficient protections to the citizens of Indiana” and informed the Compact that IN planned to “opt-out” of those standards. Under Interstate Compact rules, a state such as IN that has approved the Compact may still “opt-out” of the Compact for specific products. in the event of an “opt-out”, insurers would still be required to submit their product for approval by the state that opted out, instead of deeming that state approved once the compact has approved the product filing.

Interstate Compact – a Compact representative stated at last week’s annual meeting of the National Conference of Insurance Legislators (NCOIL) that the Compact has completed the uniform standards for individual products ands will now begin development of uniform standards for group products. It is anticipated that group life will be the first product on the Compact’s docket.

Social Security Administration Announces Cost of Living Increases

2011-10-21T11:03:00.002-04:00

For the first time since 2009, Social Security beneficiaries will receive a cost of living adjustment (COLA) increase to their benefit amount. Starting in January 2012, SS benefits will be upped by 3.6%, for an average increase of $39 per month for recipients of SS disability and retirement benefits. The annual COLA provision of Social Security is tied to certain inflation indices, but because inflation ran low in 20010 and 2011, there were no COLA increases for SS beneficiaries in those years.

Group Long Term Disability policies typically reduce (“offset”) the LTD benefit amount payable by the amount of Social Security disability benefits the insured receives. However, LTD policies do not offset for amounts received as a result of COLA increases.

The down side for SS recipients, though, is that Medicare is expected to announce increases in Medicare B premiums shortly. Those premiums are deducted automatically from monthly SS checks.

NY Pre-Existing Conditions Provisions

2011-10-06T13:08:00.001-04:00

The New York Insurance Department sent shock waves through the LTD industry in 2007 with Circular Letter 14, which followed close on the heels of the New York Court of Appeals decision in the “Benesowitz” case. The circular letter advised that pre-existing conditions provisions in LTD policies were not a permanent bar to payment of any benefits for disability caused by a pre-existing condition during the limitation period (i.e. most often the 1st 12 or 24 months of a person’s coverage), but should instead serve to merely delay or “toll” the time until which benefits for that pre-existing condition should be payable. This interpretation was at odds with the prevailing approach to pre-existing conditions provisions in the LTD industry and resulted in many carriers adjusting rates accordingly, passing along to employers the increased cost associated with the NY directive.

Now comes news that the NY state senate has passed S. 2557, a legislative proposal that would require insurers to offer employers the industry standard, pre-Benesowitz version of the pre-ex provision alongside the version that was mandated by Circular Letter 14. We have been watching this bill for some time, but had given it little chance of moving ahead in the legislature. It will be interesting to see if the proposal picks up any steam in the coming weeks.

Upcoming AICP Meeting in Orlando

2011-09-14T13:54:00.000-04:00

The annual meeting of the Association of Insurance Compliance Professionals (AICP) kicks off on September 25th in Orlando at the Peabody Hotel, famous for the ducks that mark the hotel décor in various forms and keynote the hotel’s brand. Thomas Hampton, former commissioner of the DC Insurance Department and now a senior advisor at SNR Denton US, and I will be sharing a panel at the conference for a presentation on “Hot Topics in Disability Income.”

On the state compliance front, a number of state insurance departments issued bulletins in the wake of Hurricane Irene cautioning insurers with regard to premium collection time frames and other policy requirements. Some of this activity pertained to property and casualty insurance matters, but bulletins from CT, NJ, NC and RI pertained to similar matters that arise in the administration of disability policies as well.

8th Circuit Court Decision - Polich v. Prudential Life

2011-08-11T09:38:00.000-04:00

Saw an interesting decision from the 8th Circuit Court of Appeals last week. In Polich v. Prudential Life, the circuit court upheld the district court’s ruling that the insurer was justified in denying a group LTD claim because the claimant refused to attend an independent medical exam (IME) the insurer had scheduled as part of its 2nd appeal review and also declined the insurer’s subsequent request that he provide “raw data” from his treating neuropsychologist regarding the condition that was the basis for his claim.

In this instance, the policy language allowed the insurer to deny or terminate a claim if the claimant refuses to be examined as reasonably required by the insurer or does not submit appropriate information requested by the insurer in support of the claim.

The claimant contended the request for the IME and the raw data from his treating physician were unreasonable, since the insurer should have requested all that as part of its prior review of the claim and initial appeal, especially since a medical professional the insurer consulted with on the initial claim had recommended obtaining the raw data.

The circuit court took a different view, holding that the claimant “was not required to pursue a second administrative appeal but when he continued to dispute the insurer’s conclusion and asked again for reconsideration, it surely was reasonable for Prudential to gather additional relevant information as part of its reexamination of the earlier decisions.”

Recent Compliance News and Notes

2011-06-15T11:08:00.000-04:00

Here are some legislative snippets before heading off for a week at the shore.

CT SB 34, which initially called for a ban on offsets for dependent Social Security awards in LTD policies before morphing into a study bill, died upon adjournment of the CT legislature last week…..AL and NV legislatures have just approved the Interstate Compact, and the Compact has recently issued instructions for member companies to extend Compact approved filings for use in IL (at least for products IL has authorized)…..MA Division of Insurance is about to release the results of the survey they conducted last year with disability insurers….OK Department of Insurance published bulletin LH 2011-01 on June 1 advising of the enactment of new rate filing requirements for health products, but clarified that disability income products are not included….MO and ND insurance authorities have recently issued bulletins extending grace periods and other provisions in the wake of natural disasters there.

Group Disability Still On Hold For Interstate Compact

2011-06-03T10:32:00.001-04:00

The Interstate Insurance Product Regulation Commission (IIPRC) is in the process of developing product standards for individual disability income products. Once product standards are adopted by the Compact, insurers may file that product for approval by the Compact, which then reviews and approves the filing for marketing in all the states that make up the compact (38 at last count).

A compact official told me last week, however, that it will be well into 2012 before the compact begins working up product standards for group disability products. Next up on the Compact’s docket is doing product standards for group life.

See the Compact’s website for further information at http://www.insurancecompact.org/.

AICP New England Chapter Annual Education Day

2011-05-06T12:01:00.000-04:00

The New England regional chapter of the Association of Insurance Compliance Professionals (AICP) is holding its annual Education Day next Friday, May 13th at the Marriott Hotel in Windsor, CT. I will be part of a panel discussion on "Life and Health Hot Topics."

Hope to see you there!

4 Biggest Myths About Disability Insurance

2011-05-06T11:53:00.001-04:00

I recently saw an interesting little piece on disability insurance on a website that runs some decent insurance industry news and feature pieces.

http://www.insurancenetworking.com/blogs/disability_income_insurance_agents_advisers_myths-27841-1.html?ET=insurancenetworking:e1841:55178a:&st=email

Massachusetts Legislative Session Brings Barrage of Disability Proposals

2011-04-28T12:58:00.000-04:00

Massachusetts has been somewhat of a sleeping giant when it comes to group disability regulation. There are few MA laws focused specifically on group disability and the state does not require group disability policy forms to be filed for prior approval.

All that may be changing. Last year, the MA Division of Insurance required disability insurers to respond to a comprehensive state survey regarding insurers’ disability products and their existing books of disability business. The stated intent of the survey was to enable the Division “to understand the market for disability income insurance, and also to evaluate the effectiveness of laws and regulations governing Massachusetts’ marketplace for disability income insurance.”

Now we see that this year’s MA legislative session has brought no fewer than 6 proposals that would impose new requirements or prohibitions on disability products: a ban on discretionary authority provisions (SB 427), a prohibition on LTD offsets for Social Security disability benefits (SB 445), a “mental health parity” type requirement (HB 1147), guidelines on what insurers can require of claimants with regard to the frequency and locale of required medical exams (HB 2038) and a couple gender-based bills (SB 414 and SB 413).

While these proposals must still pass through the legislative review and political process at the MA state house, the flurry of proposal activity nonetheless seems to signal that the giant is stirring.

RI Insurance Regulators Propose New Rule On Trusts

2011-03-31T11:27:00.000-04:00

The Rhode Island Insurance Division proposed a new rule last week to regulate the issuance of group policies to RI-based insurance trusts and associations, as is a common practice in the group insurance industry. Proposed Insurance Regulation 117 would require that policies issued by insurers that issue insurance through a RI trust or association must comply with applicable insurance laws of the state where an insured covered under the RI trust or association policy resides. The proposal would also require that forms issued to the RI trust or association include a provision granting regulatory jurisdiction to the regulatory agencies or courts in the states where insureds reside. While the proposal may yet encounter some thorny jurisdictional issues (extraterritoriality, anyone?), the regulation would have pretty significant implications for the continued use of trust vehicles in RI; at a minimum, the proposal seems to indicate that RI insurance regulators may be changing their views on RI trust usage. The rule would apply to individual and group policies issued or renewed on or after June 1, 2011.

Nebraska Proposal Breaks New Ground on Discretionary Authority

2011-02-02T09:23:00.000-05:00

One of my resolutions for 2011 was to see if I could go a month without a post on discretionary authority, which has become a favorite topic of mine out here. Well, since January is now behind us (and hopefully with it, any more monster CT snow storms) …. Here goes!

A bill has been introduced in the Nebraska legislature that would adopt the NAIC Model Act prohibiting discretionary clauses. Nothing earth-shaking there. But the bill would make a violation of the proposed new act an “unfair trade practice in the business of insurance,” and thus subject to a financial penalty. While an increasing number of states have been acting on discretionary authority provisions in recent months, this is the first proposal I’m aware of that builds the restriction on discretionary authority provisions into state laws on unfair trade practices. It will be interesting to see where this one goes.

On the Home Front in Connecticut

2011-01-13T15:42:00.000-05:00

State legislators across the country are beginning to formulate proposed bills for consideration by their fellow solons. In CT, rising like a phoenix from the ashes, is another proposal to prohibit offsetting LTD benefits by the amount of dependent Social Security payments. There is a similar proposal to bar LTD offsets for pension benefits received. Similar Social Security offset bills were defeated in the last couple CT legislative sessions, though a fairly rigorous disclosure requirement bill was passed. If approved, these offset proposals would result in rising LTD premium costs and probably lead to more employers dropping their LTD programs or passing along more of the cost to employees.

I also see in my local paper (I’ll admit it, I’m a holdout for the black newsprint with my morning coffee) that CT’s newly elected Governor Malloy supports a paid sick leave bill that was defeated in the CT legislature last session. The proposal would require employers to grant employees up to five paid sick days per year. While the duration of the bill’s benefits are not on the same scale as the state-mandated STD programs in CA, HI, NJ, NY, PR and RI, supporters nonetheless claim it would be the first state-mandated sick leave program in the nation.

Texas Publishes New Rule on Discretionary Clauses

2010-12-10T10:55:00.001-05:00

On the heels of the recent notice from insurance authorities in the District of Columbia advising that they will not approve forms containing discretionary clauses, the Texas Department of Insurance on December 7th published adopted rules similarly prohibiting the use of discretionary clauses in insurance policy forms.

The news from TX capped a rule-making process that had been in motion since early in 2010. While industry representatives provided testimony at the public hearings that were held on this issue, their input failed to stem the rising tide of state insurance department opposition on this issue.

The regulatory drum on the issue of discretionary clauses continues to beat steady and loud. The shoe that some industry observers expect to drop next is a big one – NY has been silent on this issue since April, when it issued a draft regulation prohibiting discretionary clauses in NY policies.

DC Bulletin on Discretionary Authority

2010-12-06T11:03:00.001-05:00

The District of Columbia Department of Insurance last week issued a formal Notice to insurers advising that policies containing discretionary clauses “will be examined to determine if any discretionary clauses can be used improperly to deny claims or to restrict any rights an insured has under the policy which is otherwise properly payable…”

The Notice cites the following language as an example of a discretionary clause:

“We have full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the policy.”

While there are no specific prohibitions on this sort of policy language in the DC insurance code or regulations, the Notice advises that the “Department does prohibit Sole Discretionary language and other types of discretionary clauses in policy forms, and will request changes to the policy form.”

New SERFF Requirement in Connecticut

2010-11-29T14:21:00.000-05:00

In one of his last official acts, outgoing CT Insurance Commissioner Thomas Sullivan signed Connecticut Bulletin IC-26 mandating use of SERFF for all form, rate or rule filings made on or after January 1, 2011. The bulletin states that paper filings received after that date will be rejected.

State Insurance Department Updates

2010-11-11T15:51:00.006-05:00

On the heels of our last post regarding Alaska’s reinstatement of its “filing for prior approval” requirement, here’s some other recent insurance department news on the state filing front:

Arkansas issued Bulletin No. 9-2010 dated November 2nd to advise that SERFF and EFT will be required for rate and form filings effective March 1, 2011….Connecticut alerted the industry informally this week that it will be releasing a bulletin soon to implement a SERFF requirement as of some yet to be determined effective date…. Delaware released Forms and Rates Bulletin No. 33 informing insurers that the department will only accept EFT for payment of fees in connection with rate, form, rule and advertisement filings.

Also, Michigan continues to work with trade groups to refine requirements for its anticipated data call for policies sold since January 1, 2000. And Alaska issued Bulletin B-10-07 on October 28th requesting that insurers provide an updated general email address specifically for the purpose of receiving email notifications from the department, to avoid situations where notification emails from the department are returned as undeliverable due to staffing changes at insurers.

Alaska to Require New Filing Approvals

2010-10-26T16:06:00.002-04:00

The Alaska Division of Insurance issued Bulletin B 10-08 recently to provide notice of Order R10-04 repealing the exemption of certain products, including disability, from filing and approval requirements. Beginning January 1, 2011, all new or revised forms must be filed for prior approval by Alaska. Forms not filed prior to January 1, 2011 are not required to be filed for approval unless they are amended.

Alaska now joins Michigan in the ranks of states that have rescinded relatively long standing exemptions from filing and approval requirements in 2010. As the Massachusetts Insurance Division collects survey data from disability insurers, it will be interesting to see what may come of their exemption for the filing of group disability forms for approval as well.

Delaware - EFT Required for SERFF Filings Starting November 1

2010-10-11T10:29:00.000-04:00

On September 27th, the Delaware Insurance Department issued Bulletin No. 33 requiring use of Electronic Funds Transfers (EFT) for rate, form, rule and advertisement filings that are submitted using the System for Electronic Rate and Form Filings (SERFF). The new EFT requirement is effective November 1, 2010.

Senate Hearings on Disability Insurance

2010-10-05T17:22:00.000-04:00

The Senate Finance Committee held a hearing in Washington last week on the question “Do Private Long-Term Disability Policies Provide the Protection They Promise?”

The hearing was attended by only 3 of the 23 Senators that make up the committee, a fact that was lamented by Senator Baucus (D-MT), the committee chairman, in his closing remarks.

The committee heard testimony from a vocational rehabilitation counselor, a judge from an AL district court, a prominent disability plaintiffs’ attorney, an ACLI representative and a deputy commissioner from the Social Security Administration.

The hearing was largely a forum on the extent to which there’s “something broken” with long term disability insurance and the degree to which ERISA serves to harm the interests of claimants.

Of note, one of the 3 senators attending remarked that ERISA jurisdiction does not rest with the Finance Committee and seemed more intent on discussing LTD as it pertains to the Social Security disability application process. Another senator suggested that the GAO study the 50 states to see if issues might be better addressed by alternative courses of action at the state level. Committee chairman Baucus did voice his determination to bring his findings to the Senate committee that has jurisdiction over ERISA, in the hope of fixing the perceived problem with private disability insurance.

Notwithstanding the sparse turnout by the committee membership, the hearing did represent at least another indication that the role ERISA plays in regulating employee benefit plans may yet be subject to a more searching examination in Congress.

More State Activity on Discretionary Authority Provisions

2010-07-21T16:05:00.003-04:00

Regulatory activity has been continuing in recent weeks on the discretionary authority front that we have written about in recent posts.

One insurance department issued a bulletin to clarify that its state's 2005 ban on discretionary clauses in health or disability insurance policies is applicable to new policies issued after 2005 as well as to policies renewed after that date.

Leaving aside the question as to whether policies technically "renew" or not, the department's bulletin advised in no uncertain terms that insurers who "continue to exercise discretionary clauses against their policyholders" are not in compliance with their state's laws and "will be held accountable and subject to regulatory action."

The phrasing of the bulletin is as curious as it is revealing. This is not a good thing for anybody - least of all the insurers who issue group policies, the employers who buy them or the employees whose incomes are protected by them.

Insurers do not "exercise" discretionary authority clauses in the same manner they exercise clauses, for example, that require a person to be disabled for 180 days under certain long term disability policies or that call for the LTD benefit amount to be reduced by the amount of Social Security benefits for that same disability. In fact, you would be hard pressed to find the phrase "discretionary authority" in any of the numerous and sometimes lengthy communications an LTD insurer sends its claimants.

Instead, it is typically the federal courts (where most claims under group policies are litigated) that fix on the inclusion or omission of discretionary clauses as a factor in determining what standard of review the court will apply in hearing a case. The presence of a discretionary clause generally leads the court to apply a standard that is considered more "deferential" to the insurer's claim determination.

This is the legal standard that has governed ERISA litigation for some time now, in an effort to rein in the legal free for all - and spiraling insurance costs - that would result if courts all over the country could substitute their own interpretations for the ones that the insurers' claims people had made. So it is disturbing to read regulatory pronouncements that appear out of touch with what happens in the real world of claim administration and litigation.

At another state insurance department's recent hearings on proposed rules to ban discretionary clauses in policies issued in their state, an insurance department legal representative questioned the evidence supporting the LTD industry's contention that a ban on discretionary authority provisions would lead to rising LTD plan costs, stating that in any event "carriers are free to apply a rate change due to the removal of the clause."

Another regulatory spokesperson at the hearing dismissed industry concerns about the impact a ban on discretionary authority provisions would have on costs, citing the small percentage of overall employee benefits costs that group disability plans represent and the belief that the ban would lead to better claim decisions and eliminate bad lawsuits. In any event, states of late seem more and more eager to push the envelope on the issue of just how important discretionary clauses are in helping to keep the cost of a typical group disability policy fairly modest.

As CA and NY move ahead with their own discretionary authority bans, it's hard to escape the conclusion that something has to give here, and soon, before the court system becomes logjammed with disability claim litigation from claimants and attorneys eager to take advantage of the new ground rules that result from the absence of discretionary authority provisions.

Discretionary Authority – A House of Cards?

2010-06-10T12:42:00.000-04:00

The U.S. Supreme Court on May 17th declined to review the 9th Circuit Court of Appeal’s 2009 decision that upheld the state of Montana’s ban on discretionary clauses in group health and disability policies. Standard Insurance Company sued in 2006 to challenge the state’s prohibition, arguing that state law in this instance should be pre-empted by ERISA, the primary federal law governing employee benefit plans. The MT ban was supported first by the ruling of the district court, and then by the 9th Circuit Court of Appeals.

The Supreme Court’s recent Conkright decision spoke of the important part that ERISA – and with it, the principal of deference to benefit determinations made by claim administrators - plays in promoting the efficiency, uniformity and predictability that recession-plagued employers need in order to continue benefit programs at current cost levels.

The Supreme Court in Conkright seems in one breath to be holding the line on the importance of deference to the decisions of claim administrators, in instances where the plan includes “discretionary authority” language such as the provision that MT banned. But in the next breath, electing to pass on reviewing the MT discretionary authority prohibition seems to be opening the door to more situations where plans will not have that language because of state laws forbidding it.

Maybe, as a Standard spokesperson stated, the Supreme Court “may feel further development in the lower courts is appropriate before it directly addresses the issue” of whether state bans such as the MT one are pre-empted by ERISA. But as the ranks of states barring discretionary authority provisions grow, how much “further development” will be too much?

Presentation: "Disability Hot Topics - Legislative and Litigation Update"

2010-05-26T09:37:00.002-04:00

Here's a link to my presentation at the AICP New England Chapter's "Education Day" conference in Providence last week.

AICP Presentation

A couple of CT updates since the presentation was compiled.... the legislature amended SB 141 to require a separate and prominent disclosure to employees regarding offsets, instead of prohibiting offsets for dependent Social Security as the original version of the bill called for. And SB 194, a proposal to require rate filings for individual disability income products, died in the legislative session.

Association of Insurance Compliance Professionals (AICP) – New England Regional Chapter Education Day

2010-05-21T12:09:00.001-04:00

Just back from Providence, where I presented last week on “Hot Topics in Disability Insurance – Legislative and Legal Update” at the annual Education Day sponsored by the New England chapter of the Association of Insurance Compliance Professionals (http://www.aicp.net/).

Several conference attendees confirmed that they too are running into new filing issues related to variability in MO and several other states, as regulators raise objections and impose requirements that were not raised on filings approved as recently as several months ago.

On another note, a MA Insurance Department representative stated at the conference that his department will soon be releasing a draft survey to insurers regarding disability insurance, a product not regulated by MA up to now (at least on the group side). There was no mention, however, of any imminent plans by the department to push for greater regulation or required filings of disability income products.

Learn more about CDS at http://www.customdisability.com/

Whither Discretionary Authority?

2010-04-23T09:33:00.001-04:00

The New York State Insurance Department (NYSID) recently released a draft of Regulation 184 - Prohibition of Discretionary Clauses.

Here is the link http://www.ins.state.ny.us/r_outreach/r_out_discret_clause.pdf

NY took some initial halting steps on discretionary authority in 2006, with the release of Circular Letter 14 proposing to ban discretionary authority provisions in insurance policies, but it has been very surprising that NY had not jumped back into the discretionary authority mosh pit since then. Perhaps emboldened by similar recent stirrings in other jumbo states (TX and CA), it appears NY is now moving ahead with promulgating such a regulation. NY has asked that comments on the draft it is now proposing be submitted by May 5th. As the list of states acting on the topic of discretionary authority grows, it seems only a matter of time before this issue bubbles up to the Supreme Court for a decision that will have a profound impact on employee benefit plans and ERISA.

Financial Services Reform

2010-03-29T11:53:00.001-04:00

For the most part, the insurance industry escaped the glare of the financial services reform proposal rolled out in Congress recently by Senator Dodd (who is not running for re-election). However, the proposal does recommend the creation of an office of national insurance within the Treasury Department to monitor the insurance industry and assess ways to modernize insurance regulation. Specifically, the proposed national insurance office would evaluate the merits of providing insurers with the option for federal charters, and thus federal regulation. It is hard to imagine a Congressionally-created, federal office of anything concluding that state regulation is a more favorable framework, but my instincts and my sense of history tell me that this is another small step in the slow drift toward a dual regulatory system similar to the one that oversees the banking industry. We can only hope that a federal system of insurance regulation would be more diligent and well-informed than the regulatory framework that was charged with keeping the activities of our banking giants under control.

Discretionary Authority – Another One Bites the Dust

2010-03-15T10:54:00.002-04:00

The KY Department of Insurance last week issued Advisory Opinion 2010-01, stating its opinion that “discretionary clauses deceptively affect the risk purported to be assumed in any policy and as such, any forms containing discretionary clauses may be disapproved.” This opinion rescinds Advisory Opinion 2008-05, which KY issued a couple years ago to advise that the department would allow discretionary clauses so long as the insurer construed and interpreted the benefits according to the policy and did not use the discretionary clause to deny benefits otherwise promised by the policy. In the wake of recent similar activity in TX, this is a pretty clear sign that regulatory pressure on discretionary clauses is not going away or lessening, as some industry insiders thought it might after the initial wave of state activity against these provisions several years ago.

Readability

2010-03-12T10:56:00.000-05:00

The NAIC Spring meeting scheduled for late March in Denver will include a public hearing to focus on readability and plain language of insurance contracts and other consumer materials distributed by insurance companies, across all lines of business. I have not seen an agenda for the hearing. Maybe they intend to focus on some of the more exotic contracts that came to prominence in the financial meltdown (credit default swaps etc). But I do think there is a growing regulatory sense that insurers’ policies need to do more than just achieve minimum “reading ease” (Flesch) test scores or re-package the same wording and provisions into a Q and A format. Maybe we are seeing the start of another regulatory cycle of legislative action to make insurance policies more understandable to lay person purchasers, similar to the movement that swept the insurance industry about a generation ago. Such regulatory efforts would no doubt have substantial impacts on disability policy language drafting and product development efforts in general.

Opening Post

2010-02-18T14:24:00.000-05:00

Welcome to the opening installment of The Murphy Files, our forum for what we hope will become a stimulating exchange of ideas and information regarding regulatory and legal matters of interest to disability professionals. We do request that people sign their posts, and would also remind everyone that it is illegal for employees from different companies to share information regarding their company’s rating practices or any other information that could be deemed “anti-competitive” or is confidential or proprietary. While we’re at it, here’s the rest of the disclaimer:

CDS is committed to adhering to the letter and the spirit of anti-trust laws. “The Murphy Files” is intended solely as a forum for the expression of various points of view on the regulatory and legal topics identified there. Under no circumstances shall “The Murphy Files” be used as a mechanism or means for competing companies to reach any understanding, expressed or implied, which tends to restrict competition or, in any way, impair the ability of members to exercise their independent business judgment regarding matters affecting competition.

Topic - The Interstate Compact (IC)

As we wait patiently for the IC to develop group disability product standards, we’re curious about what sort of experiences companies are having in filing other products with the IC. Are reviewers adhering closely and consistently to the product standards? How are the turnaround times for IC filings, compared with turnaround times for state fillings (which admittedly vary widely from state to state)? Any other comments?