According to a study by the Insurance Compliance Solutions group at Wolters Kluwer Financial Services, 2009 was the biggest year in recent history for insurance-related regulatory reform. More than 11,000 pieces of legislation were introduced this year that could potentially impact the insurance industry, which marks an 80 percent increase from 2008 and a 60 percent increase from 2007.
The Agent's Sales Journal has gathered a list of some of the most important pieces of legislation for those in the life and health insurance industry.
#1: The Troubled Asset Relief Program (TARP)
In April 2009, the Treasury Department decided to allow life insurance companies to apply for bailout money from the Troubled Asset Relief Program (TARP). In order to qualify for the funds, an insurer had to own a federally chartered bank. Although several companies, including Prudential Financial, Lincoln National, and Hartford Financial, did own such banks and had applied for TARP funds in 2008, the government did not give them any funds at that time, instead focusing on other industries.
After the initial announcement, the shares of several life insurance companies rose broadly. This trend indicated that TARP funds would stabilize the life insurance industry, which had suffered severe losses over the past year.
Though 12 companies initially applied for aid, just two — Hartford and Lincoln National — ultimately decided to accept the money. Some companies were not eligible to receive the funds, and others decided against accepting the aid.
#2: An Optional Federal Charter for Insurers
The United States insurance industry has historically been regulated by the states. But some in the industry see the state system as overly complex, anti-competition, and excessively burdensome. They say that it increases the cost of compliance and delays the launching of new products. Others see the continuation of state regulation, with its system of state guaranty funds, as the best way to protect consumers when companies face insolvency.
One proposal for reform involves the creation of an optional federal charter. Such a joint federal-state system — similar to the banking industry's dual regulatory mechanisms in that it would allow companies to choose between the state system and the federal option — would have 51 sets of different regulations and a national regulatory structure. Among those supporting an optional federal charter are a few large insurers that sell coverage to major corporations, reinsurers, brokerage firms, life insurers, and banks that are moving into the insurance business. Those opposed include smaller insurers and state insurance regulators.
#3: States Crack Down on Annuities
In response to increased scrutiny of annuities by the popular media (especially Dateline NBC), many states have begun taking a second look at the protections they have in place for seniors with annuities.
In New Jersey, the Predatory Annuities Prevention Act, which was unanimously passed in September 2008, went into effect on April 1, 2009. The act is designed to help protect consumers through three major provisions: First, annuity salespeople without the proper credentials will not be able to claim that they have senior financial expertise on their marketing materials. Second, annuity agents will be required to fill out disclosure and suitability forms to clearly lay out the terms and agreements of a customer's investment.
Finally, the act gives consumers a 10-day right-to-cancel period, during which an annuity can be cancelled without any financial penalty.
In Florida, where 26 percent of the population will be age 65 or older by the year 2030, the state Senate unanimously passed the Safeguard Our Seniors Act. This bill limits to five years the surrender-charge period for annuities sold to consumers ages 65 and older. Additionally, it extends to 60 days the free-look period for seniors buying annuities, up from 14 days; during this time, consumers can terminate their contract without penalty. However, because the Florida House has yet to hear the bill, it may not become effective in 2009.
And that's just two states; several others are making changes to their laws, as well. Be sure to stay in touch with your state insurance commissioner's office for any legislative updates that may affect your practice.
Reps. Judy Biggert and Paul E. Kanjorski
#4: Federal Insurance Office
Since May 2009, a great deal of effort has been put into bills designed to create a Federal Insurance Office (FIO), but those efforts have only recently earned support from state insurance regulators.
