Section 48.1 provides definitions applicable to the rule.

Section 48.2 sets forth standards and procedures for the determination and any readjustment of non-guaranteed elements.

Section 48.3 requires notification to policy owners of non-guaranteed elements at the time of issue and prior to any readjustment.

Section 48.4 requires insurers and fraternal benefit societies to file with the Superintendent documentation used in the determination and any readjustment of non-guaranteed elements and to maintain records documenting compliance with the rule.

1. Statutory authority: The Superintendent’s authority to promulgate 11 NYCRR 48 (Insurance Regulation 210) derives from Financial Services Law (“FSL”) sections 202 and 302, and Insurance Law sections 301, 1106, 1113, 3201, 3203, 3209, 3219, 3220, 3223, 4216, 4221, 4223, 4224, 4231, 4232, 4238, 4239, 4240, 4510, 4511, 4513, 4518 and Article 24.

FSL section 202 establishes the office of the Superintendent of Financial Services (“Superintendent”) and designates the Superintendent as the head of the Department of Financial Services (“Department”).

FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded to the Superintendent by the Insurance Law, Banking Law, Financial Services Law, or any other law of this state, and to prescribe regulations interpreting the Insurance Law, among other things.

Insurance Law section 1106 provides that no foreign or alien insurer may be licensed to do any kind of insurance business, or combination of kinds of insurance business, that are not permitted to be done by domestic insurers under the Insurance Law.

Insurance Law section 1113 sets forth the kinds of insurance that may be authorized in this state, including life insurance and annuities.

Insurance Law article 24 prohibits unfair methods of competition and unfair or deceptive acts or practices. A violation of section 4224 is a defined violation under Article 24. The Superintendent may also find, in accordance with section 2405, that a particular practice is an unfair or deceptive method, act or practice. This rule puts regulated entities on notice that if the entity violates this Part the Superintendent will consider such activity to be an unfair or deceptive method act or practice.

Insurance Law section 3201 requires the prior approval of any life, annuity, accident and health, and credit unemployment policy form.

Insurance Law sections 3203, 3219, 3220 and 3223 set forth the required standard provisions for life insurance policies and annuity contracts.

Insurance Law section 3209 mandates disclosure requirements for the sale of life insurance, annuities and funding agreements and authorizes the Superintendent to promulgate regulations to implement the provisions of the section.

Insurance Law sections 4216 and 4238 set forth certain requirements for issuing group life insurance and group annuities. Sections 4216(c)(2) and 4238(d) establish certain requirements for group life insurance policies and group annuity contracts that provide for readjustment of the rate of premium.

Insurance Law sections 4221 and 4223 establish minimum nonforfeiture benefits for life insurance and annuities.

Insurance Law section 4224 proscribes unfair discrimination and other prohibited practices by insurers.

Insurance Law section 4231 establishes the rule for the distribution of surplus through the payment of dividends to eligible life insurance policyholders. Section 4231(g)(1)(D) establishes certain requirements for individual life insurance policies that provide for the prospective readjustment of the rate of premium. Section 4231(g)(1)(E) establishes certain requirements for any insurance policy, annuity or pure endowment contract, or funding agreement that provides for readjustment in the rate of premium, stipulated contribution, consideration, or deposit.

Insurance Law section 4232 establishes certain requirements for annuities and life insurance policies that provide for additional amounts to be credited to the contract or policy. Section 4232(a)(2) establishes certain requirements for annuities subject to Insurance Law section 4223 that credit additional amounts. Section 4232(b)(2) and (4) establish certain requirements for individual life insurance policies that credit additional amounts.

Insurance Law section 4239 authorizes the Superintendent to promulgate by regulation standards for the allocation and reporting of income and expenses of life insurers.

Insurance Law section 4240 authorizes a life insurer to issue variable products and to maintain the funds that support variable products (as well as other products) within separate accounts.

Insurance Law section 4510 sets forth the required and prohibited provisions for life insurance policies issued by fraternal benefit societies.

Insurance Law section 4511 sets forth the requirements and exceptions to which life insurance certificates and annuity contracts issued by fraternal benefit societies shall be subject.

Insurance Law section 4513 requires an annuity certificate or contract issued by a fraternal benefit society to conform to all applicable rules and regulations prescribed by the Superintendent.

Insurance Law section 4518 allows additional amounts of benefits, in addition to minimum benefits guaranteed, to be credited to individual life insurance policies issued by fraternal benefit societies.

2. Legislative objectives: Insurance Law sections 4216(c)(2), 4231(g)(1)(D), 4231(g)(1)(E), 4232(a)(2), 4232(b)(2), 4232(b)(4), 4238(d), and 4518 establish minimum requirements for the determination and readjustment of non-guaranteed elements in life insurance policies and annuity contracts, including any certificates thereunder. The Legislature enacted these provisions to help ensure that any determination or readjustment is made equitably and with full and adequate disclosure. This rule establishes necessary safeguards for the adequate protection of insureds.

3. Needs and benefits: This rule addresses a number of issues that have been highlighted by complaints received by the Department regarding the determination and readjustment of non-guaranteed elements in life insurance policies, particularly with respect to universal life, indeterminate premium term, and whole life insurance, and annuity contracts. The complaints have been filed by insureds whose policies lapsed or were about to lapse, in large part because the premiums they were paying were based on the current interest rate and charges under the policy at the time the policy was issued, and the interest rate under the policy decreased over time while the charges increased. The rule should assist consumers to better understand - at the time of purchase and upon any readjustment of non-guaranteed elements - how life insurance policies and annuity certificates and contracts with non-guaranteed elements subject to change at the discretion of the insurer or fraternal benefit society operate, and thereby reduce consumer dissatisfaction and the number of lapsed policies. The rule accomplishes this by requiring additional disclosures at the time the policy, contract, or certificate is issued and by requiring notice to be provided in advance of any change in the current scale of non-guaranteed elements, in order to give the owner enough time to address any projected insufficiency.

4. Costs: Readjustments to non-guaranteed elements, if any, are made at the discretion of the insurers and fraternal benefit societies subject to this rule, thereby making it difficult to establish a cost impact on insurers. Additional costs associated with mailing notices to consumers and submitting required documentation with the Department will occur upon readjustment to non-guaranteed elements. However, because readjustment of non-guaranteed elements typically is infrequent, the Department expects that any such costs to insurers and fraternal benefit societies will not be significant.

The statute already requires board-approved written criteria with regard to many insurance and annuity products, and insurers and fraternal benefit societies already utilize the services of qualified actuaries, so no new costs of significance should be incurred. The rule minimizes the impact of mailing costs because many notice requirements may be included in existing mailings.

The Department may incur costs under this rule, but any additional costs incurred by the Department should be minimal and the Department expects to absorb the costs in its ordinary budget.

The rule does not apply to other State agencies or local governments and accordingly there are no costs to the State or local governments.

5. Local government mandates: The rule imposes no new programs, services, duties or responsibilities on any county, city, town, village, school district, fire district or other special district.

6. Paperwork: Most of the required additional disclosure to consumers may be included in disclosure documents that insurers and fraternal benefit societies are already required to provide to consumers. Most of the additional documentation that the rule requires insurers and fraternal benefit societies to file with the Department may be included with their policy form filings. However, any readjustment of non-guaranteed elements will impose new paperwork requirements.

7. Duplication: The rule does not duplicate any existing State or federal laws or regulations.

8. Alternatives: When initially developing this rule in 2008, the Department conducted outreach to the insurance industry, which offered no viable alternatives and indicated that it was “unaware of any problems in the marketplace involving the determination of discretionary amounts[.]” However, in the intervening years, the largest volume of life insurance-related consumer complaints received by the Department involved changes to non-guaranteed elements, and implementation of these rules are critical to help life insurance annuity consumers. The Department considered not implementing the rule, but rejected this alternative for the reasons stated herein. However, the Department considered the comments and made adjustments to the proposal as appropriate.

9. Federal standards: There are no federal standards in this subject area.

10. Compliance schedule: The rule will become effective 120 days after publication in the State Register. Four months should be sufficient time for insurers and fraternal benefit societies to comply with the rule. Since the rule provides that the insurer or fraternal benefit society must provide 120-days’ notice to consumers with respect to any changes in the non-guaranteed elements, this effectively provides insurers and fraternal benefit societies 120 days to come into compliance with such notice requirements, which the Department believes to be sufficient time.

1. Small businesses: The Department of Financial Services (“Department”) finds that this new part will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at all insurers and fraternal benefit societies that are authorized to do life insurance business in New York State, none of which comes within the definition of “small business” as defined in section 102(8) of the State Administrative Procedure Act. The Department reviewed filed reports on examination and annual statements of such authorized insurers and fraternal benefit societies and concludes that none of these entities comes within the definition of “small business,” because there are none that are both independently owned and have fewer than one hundred employees.

2. Local governments: This rule does not impose any reporting, recordkeeping, or other compliance requirements on any local governments because it does not apply to local governments.

1. Types and estimated number of rural areas: Insurers and fraternal benefit societies affected by this rule do business in every county in this state, including rural areas as defined in State Administrative Procedure Act section 102(10).

2. Reporting, recordkeeping and other compliance requirements, and professional services: This new part requires insurers and fraternal benefit societies to file with the Department of Financial Services (“Department”) documentation that standards for the determination and any readjustment of non-guaranteed elements for life insurance policies and annuity contracts are being met. It requires disclosure of the non-guaranteed elements and any readjustment to the consumer. It requires recordkeeping by the insurer of compliance with the Part and requires the use of professional services, namely, a qualified actuary, in the determination of the non-guaranteed elements.

3. Costs: Readjustments to non-guaranteed elements, if any, are made at the discretion of the insurers and fraternal benefit societies subject to this rule, thereby making it difficult to establish a cost impact on insurers. Additional costs associated with mailing notices to consumers and submitting required documentation with the Department will occur upon readjustment to non-guaranteed elements. However, because readjustment of non-guaranteed elements typically is infrequent, the Department expects that any such costs to insurers and fraternal benefit societies will not be significant.

The statute already requires board-approved written criteria with regard to many insurance and annuity products, and insurers and fraternal benefit societies already utilize the services of qualified actuaries, so no new costs of significance should be incurred. The rule minimizes the impact of mailing costs because many notice requirements may be included in existing mailings.

4. Minimizing adverse impact: The Department finds that this rule does not impose any additional burden on insurers or fraternal benefit societies located in rural areas. This rule applies uniformly to regulated parties that do business in both rural and non-rural areas of New York State. As explained under Costs immediately above, the rulemaking should not have any adverse impact on rural areas.

5. Rural area participation: When initially developing this rule in 2008, the Department conducted outreach to the insurance industry, which includes insurers and fraternal benefit societies located in rural areas. Entities in rural areas will have an opportunity to participate in the rulemaking process once the proposed rule is published in the State Register and posted on the Department’s website.

The Department of Financial Services finds that this rule should not adversely impact jobs or employment opportunities, including self-employment opportunities in New York State. This new part establishes standards for the determination and readjustment by insurers and fraternal benefit societies of non-guaranteed elements in life insurance policies and annuity contracts. Insurers and fraternal benefit societies should not need to hire additional employees or independent contractors to comply with these new standards because they already determine and readjust non-guaranteed elements.