MA and RI Regulatory News

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

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

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

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

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

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

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

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

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

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

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

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

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

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.