Relates to replacement of individual life insurance policies or annuity contracts; amends provisions relating to misrepresentations and misleading statements; requires replacements regulation be consistent with policies of the national association of insurance commissioners.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A4434
SPONSOR: Steck 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 § 5 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 § 5 2123 and 4226 of the insurance law so as to contin-
ue 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 replace-
ment or 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
NATC; 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 require-
ment 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 Regu-
lation 60 governing replacements of life insurance policies and annuity
contracts. Since its implementation in 1998, Regulation 60 has not prov-
en to work very well because, in some instances, it requires the compar-
ison 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 pas not always served the customer well. In some instances, they
have been unable to timely complete a transaction on an interest-sensi-
tive 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 Oftentimes, these delays
are totally unnecessary because the customer is fully aware of the
details of their transaction and are 'anxious to complete their trans-
action.
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 inap-
propriate 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 NAIL Model disclosure requirement and the practice
in most other states. New York law would continue to prohibit misrepre-
sentations 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:
2021/22: A9688 referred to insurance
FISCAL IMPLICATIONS:
None.
EFFECTIVE DATE:
This act will take effect on the 180th day after it shall have become a
law.
STATE OF NEW YORK
________________________________________________________________________
4434
2023-2024 Regular Sessions
IN ASSEMBLY
February 14, 2023
___________
Introduced by M. of A. STECK -- read once and referred 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:
1 Section 1. The section heading and subsections (a), (b) and (c) of
2 section 2123 of the insurance law, subsection (a) as amended by section
3 37-a of part D of chapter 56 of the laws of 2013, subsections (b) and
4 (c) as amended by chapter 540 of the laws of 1996, are amended to read
5 as follows:
6 Misrepresentations[,] and misleading statements [and incomplete
7 comparisons]. (a) (1) No agent or representative of any insurer or
8 health maintenance organization authorized to transact life, accident or
9 health insurance or health maintenance organization business in this
10 state, insurance broker, person who has received a grant from and has
11 been certified by the health benefit exchange established pursuant to
12 section 1311 of the Affordable Care Act, 42 U.S.C. § 18031, to act as a
13 navigator, including any person employed by a certified navigator, or
14 other person, firm, association or corporation, shall issue or circulate
15 or cause or permit to be issued or circulated, any illustration, circu-
16 lar, statement or memorandum misrepresenting the terms, benefits or
17 advantages of any policy or contract of life, accident or health insur-
18 ance, any annuity contract or any health maintenance organization
19 contract, delivered or issued for delivery or to be delivered or issued
20 for delivery, in this state, or shall make any misleading estimate as to
21 the dividends or share of surplus or additional amounts to be received
22 in the future on such policy or contract, or shall make any false or
23 misleading statement as to the dividends or share of surplus or addi-
24 tional amounts previously paid by any such insurer or health maintenance
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD06658-01-3
A. 4434 2
1 organization on similar policies or contracts, or shall make any
2 misleading representation, or any misrepresentation, as to the financial
3 condition of any such insurer or health maintenance organization, or as
4 to the legal reserve system upon which such insurer or health mainte-
5 nance organization operates.
6 (2) No such person, firm, association or corporation shall make to any
7 person or persons any incomplete [comparison] or misleading represen-
8 tation of any such policies or contracts of any insurer, insurers, or
9 health maintenance organization, for the purpose of inducing, or tending
10 to induce, such person or persons to lapse, forfeit or surrender any
11 insurance policy or health maintenance organization contract.
12 (3) Any replacement of individual life insurance policies or individ-
13 ual annuity contracts of an insurer by an agent, representative of the
14 same or different insurer or broker shall conform to standards promul-
15 gated by regulation by the superintendent. Such regulation shall be
16 consistent, to the greatest extent practicable and in the public inter-
17 est, with the replacements regulation adopted by the national associ-
18 ation of insurance commissioners, as amended from time to time, and
19 shall also:
20 (A) specify what constitutes the replacement of a life insurance poli-
21 cy or annuity contract and the proper disclosure and notification proce-
22 dures to replace a policy or contract;
23 (B) require notification of the proposed replacement to the insurer
24 whose policies or contracts are intended to be replaced; and
25 (C) [require the timely exchange of illustrative and cost information
26 required by section three thousand two hundred nine of this chapter and
27 necessary for completion of a comparison of the proposed and replaced
28 coverage; and
29 (D)] provide for a sixty-day period following issuance of the replace-
30 ment policies or contracts during which the policy or contract owner may
31 return the policies or contracts and reinstate the replaced policies or
32 contracts.
33 (b) [Any comparison of the policies or contracts of any such insurer,
34 insurers or health maintenance organization shall be deemed to be an
35 incomplete comparison if it does not conform to all the requirements for
36 comparisons established by regulation.
37 (c)] In the determination, judicial or otherwise, of the incomplete-
38 ness or misleading character of any such [comparison] representation, it
39 shall not be presumed that the insured knew or knows of any of the
40 provisions, terms or benefits contained in any insurance policy or
41 health maintenance organization contract.
42 § 2. The section heading and subsections (a), (b) and (c) of section
43 4226 of the insurance law, paragraph 6 of subsection (a) as added by
44 chapter 616 of the laws of 1997, are amended to read as follows:
45 Misrepresentations[,] and misleading statements [and incomplete
46 comparisons] by insurers. (a) No insurer authorized to do in this state
47 the business of life, or accident and health insurance, or to make annu-
48 ity contracts shall:
49 (1) issue or circulate, or cause or permit to be issued or circulated
50 on its behalf, any illustration, circular, statement or memorandum
51 misrepresenting the terms, benefits or advantages of any of its policies
52 or contracts;
53 (2) make any estimate of the dividends or share of surplus or addi-
54 tional amounts to be received on such policies or contracts;
A. 4434 3
1 (3) make any false or misleading statement of the dividends or share
2 of surplus or additional amounts paid by any such insurer on similar
3 policies or contracts;
4 (4) make any misleading representation, or any misrepresentation of
5 the financial condition of any such insurer or of the legal reserve
6 system upon which it operates; [or]
7 (5) make or deliver to any person or persons any incomplete [compar-
8 ison of] or misleading representation regarding any such policies or
9 contracts for the purpose of inducing, or tending to induce, such person
10 or persons to lapse, forfeit or surrender any insurance policy or
11 contract[.]; or
12 (6) replace the individual life insurance policies or individual annu-
13 ity contracts of an insurer by the same or different insurer without
14 conforming to the standards promulgated by regulation by the superinten-
15 dent. Such regulation shall be consistent, to the greatest extent prac-
16 ticable and in the public interest, with the replacements regulation
17 adopted by the national association of insurance commissioners, as
18 amended from time to time, and shall also:
19 (A) specify what constitutes the replacement of a life insurance poli-
20 cy or annuity contract and the proper disclosure and notification proce-
21 dures to replace a policy or contract;
22 (B) require notification of the proposed replacement to the insurer
23 whose policies or contracts are intended to be replaced; and
24 (C) [require the timely exchange of illustrative and cost information
25 required by section three thousand two hundred nine of this chapter and
26 necessary for completion of a comparison of the proposed and replaced
27 coverage; and
28 (D)] provide for a sixty-day period following issuance of the replace-
29 ment policies or contracts during which the policy or contract owner may
30 return the policies or contracts and reinstate the replaced policies or
31 contracts.
32 (b) [Any comparison of the policies or contracts of any such insurer
33 or insurers shall be deemed to be an incomplete comparison if it does
34 not conform to all the requirements for comparisons established by the
35 superintendent by regulation.
36 (c)] In any determination, judicial or otherwise, of the incomplete-
37 ness or misleading character of any such [comparison or of] represen-
38 tation, it shall not be presumed that the insured knew or knows of any
39 of the provisions or benefits contained in any insurance policy or
40 contract.
41 § 3. This act shall take effect on the one hundred eightieth day after
42 it shall have become a law.
