Product Regulation

  • 2001 – SOA- Insurance Product Regulation-A World Tour, part 1 of a four-part series on insurance product regulations around the world, by Yiji S. Starr – 5p

2018 - Book - Statutory Valuation of Individual Life and Annuity Contracts

  • 2018 - Book - Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition -- by Donna Claire, Lombardi and Summers  ---  [BonkNote]
  • The typical "present value of future benefits less the present value of future net premiums" formula is challenging to apply to flexible premium universal life policies... since neither "future premiums" nor "future benefits" are known for any particular policy.   
  • (p323) - 14.4 Universal Life Insurance Model Regulation
    • Flexible premium products introduce special valuation problems using traditional methods in that some assumption as to future premiums is required.
    • The typical "present value of future benefits less the present value of future net premiums" formula is challenging to apply to flexible premium universal life policies, since neither "future premiums" nor "future benefits" are known for any particular policy.

Q: What is the Purpose of Insurance Regulation?

  • Policyholder Protection
  • Solvency of Companies
  • PRELIMINARY COMMENT: The principal goal of insurance regulation has always been to prevent insurer insolvencies.
  • It is pursued in various ways.

1969 0821- Wisconsin – 1969 Senate Bill 525 – Chapter 646 – Insurance Security Fund 

  • [p56-62/173-179 – Comment: Michael P. Lynch-p56/173 = Their model is designed to apply to the casualty-and-property segment of the insurance industry, but it is worth noting that solvency regulation figures prominently in the $30-billion-a-year life insurance business. For example, a well-known textbook (D. McGill, Life Insurance, revised edition [Homewood, ILL.: Irwin, 1976]) states the following  (p. 776):
    • The primary purpose of state insurance regulation is to maintain the solvency and financial soundness of the companies providing insurance protection.  In states having large domestic insurers the amount of effort expended in the supervision of the insurers’ affairs exceeds that involved in all other kinds of supervisory work combined.
    • This emphasis on solvency regulation exists despite the rarity of insolvencies among life insurance companies and the even greater rarity of consumers being hurt by insolvency.
      • (Equity Funding was a case of defrauding stockholders, not policyholders.)

1981 – NBER – Theory of Solvency Regulation in the Property and Casualty Insurance Industry, Chapter Author: Patricia Munch, Dennis Smallwood – 63p

    1980 – Book – Studies in Public Regulation, by Gary Fromm – nber.org/books-and-chapters/studies-public-regulation

  • [p56-62/163-179 – Comment: Michael P. Lynch]
  • p178 – From this point of view, the benefits of solvency regulation cannot be measured merely in terms of reduced insolvency rates. The main benefits are in the increased size of the market which is made possible by the policyholders’ belief that insolvencies either won’t occur or that, if they do, the policyholders will not be hurt.
  • I have not made a detailed study of the history of life insurance solvency regulations, but what little I know of it is consistent with the “lemon” theory of insolvency regulation. In the 1840s the life insurance industry began to grow very rapidly with the successful introduction of the “mutual” policy and the beginnings of the agency system (see J. O. Stalson, Marketing Life Insurance: Its History in America, revised edition [Homewood, ILL: Irwin, 1969], pp. 217-236 and 292-326). Success attracted new entrants, some of whom began to offer “dividends” (paid in scrip, not cash) amounting to 70-80 percent of the annual premium. Agents for company A would suggest that company B was offering dividends far in excess of what they could really pay. The claims gained credence when some companies failed in the 1850s. As Stalson puts it (p. 226),
  • The suspicion of all companies which these competitive assaults on individual companies engendered, however, unquestionably did every company more harm that it did any individual agent or company good.
  • It was about this same time (the early 1850s) that the states began to impose minimum capital requirements on life insurance companies and the first reserve-valuation laws were passed.
  • If the “lemon” theory of solvency regulation has much truth in it then it will be very difficult to assess regulation’s benefits. One would have to estimate what the size of the market would have been in the absence of regulation. I doubt that this can be done, though it may be worthwhile to see whether differences in solvency regulations among the states result in any detectable differences in the size of their markets.
  • But I don’t think the interesting policy questions concern whether or not solvency regulations should be eliminated. Neither industry nor consumers appear to be pushing for their removal. Rather, I think the interesting policy questions concern whether the methods that have been adopted to achieve a given probability of insolvency are low-cost ways of doing so, and how one would go about deciding on an appropriate insolvency rate, 

1981 – NBER – Theory of Solvency Regulation in the Property and Casualty Insurance Industry, Chapter Author: Patricia Munch, Dennis Smallwood – 63p

    1980 – Book – Studies in Public Regulation, by Gary Fromm – nber.org/books-and-chapters/studies-public-regulation

Walker vs. LSW – Insurance Regulation

  • 2011 – LC – Walker vs. LSW – 2:10-cv-09198 – Document 104 – Filed 09/29/11
    • re: California Insurance Commission – Complaints
      • Mr. Shapiro: Yes, your honor. And on this one I think I do need to clarify.
        • There’s a fairly rigid process with the department of insurance here in California and elsewhere for complaints.
        • The complaints go to the department.  
        • They send them to the insurance company.
        • The insurance company must respond. And then there’s typically a few rounds of that back and forth.
        • There’s a discrete complaint file.
      • (p90) – Mr. Foster: LSW will produce all documents that you sent to the California Department of Insurance that discuss 22 submissions or complaints by IUL policyholders regarding the marketing, sale, or performance of IUL.

Safety and Soundness

  • Safety and Soundness v. Consumer Protection
  • Twin Peaks
  • (p3) – Barney Frank (D-MA) –  I was told by one of the regulators, well, we can do regulation of consumer protections under our power to enforce safety and soundness on the banks, the argument being that a bank that does not treat consumers well can be called to account because it is jeopardizing its safety and soundness.
    • I wish.
  • In fact, done cleverly enough, being unfair to consumers can contribute to the safety and soundness of a bank.

2007 0613 – GOV (House) – Improving Federal Consumer Protection in Financial Services. (CSPAN) Financial Services Consumer Protection, Barney Frank (D-MA) – [PDF- 257p, VIDEO-CSPAN]

  • (p23) – Doug BARNARD, Jr (GA) – Mr. Greenspan and Mr. Clarke, too, do you interpret that the sale of insurance is a risky business, where it would bring down the safety and soundness of an institution?
  • Alan GREENSPAN. I do not, Mr. Barnard.
  • Mr. BARNARD. Mr. Clarke.
  • Mr. CLARKE. We do not believe that to be the case either.

1991 0430 and 0502 – GOV (House) – Restructuring of the Banking Industry, Part 2, Frank Annunzio (D-IL) 

CRVM – Commissioners Reserve Valuation Method

  • 1979 – SOA – Adjustable Life Expense Allowances Under The Commissioners Reserve Valuation Method, by Solomon Goldfinger, tsa79v316 – Society of Actuaries – 36p
  • 1984-1, NAIC Proceedings, Reserves Examples
  • 1994 – SOA – VASP – Valuation Actuary Symposium Proceedings – Sessions 8 – Life and Deferred Annuity Life and Deferred Annuity Liability Models, VASP946 – Society of Actuaries – 32p
  • 1994 – SOA – VASP – Valuation Actuary Symposium Proceedings – Sessions 8 – Life and Deferred Annuity Life and Deferred Annuity Liability Models, VASP946 – Society of Actuaries – 32p

    • The funding level affects: 1. Universal life commissioners reserve valuation method reserves — In particular the r factor is the ratio of the actual fund value to the guaranteed maturity fund. Since r is capped at 100%, using a ratio based on the average fund for all policies may not produce the actual reserve.

    • Separate the policies based on the guaranteed maturity fund (i.e., greater than and less than the guaranteed maturity fund). This recognizes the differences in the r factor.

Best Practices

  • 2004 – NAIC – Best Practices Organizations White Paper – 50p

2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)

  • 2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  —  [BonkNote]
    • [PDF-123p, VIDEO-?] – <mp3, mp4> – R
    • Committee on Financial Services – Subcommittee on Oversight and Investigations 
    • CFA – J. Robert Hunter
    • GAO – Richard J. Hillman
      • 2003 0506 – GAO – Insurance Regulation: Preliminary Views on States’ Oversight of Insurers’ Market Behavior, Statement of Richard J. Hillman, Director, Financial Markets and Community Investment – 15p
    • NAIC – Joel S. Ario, Insurance Administrator, Oregon Insurance Division, Secretary Treasurer – 23p
  • NAIC – Ario, Hon. Joel S., Insurance Administrator, Oregon Insurance Division, Secretary-Treasurer, NAIC – National Association of Insurance Commissioners …………. 7
  • IMSA – Atchinson, Brian K., Executive Director, Insurance Marketplace Standards Association  …………… 11
  • GAO – Hillman, Richard J., Director, Financial Markets and Community Investment,
    U.S. General Accounting Office … 9
  • CFA – Hunter, J. Robert, Director of Insurance, Consumer Federation of America ….. 13
  • Marema, Lenore S., Vice President, Legal and Regulatory Affairs, Alliance of American Insurers ….. 14
  • NCOIL – Parke, Hon. Terry, Illinois State Representative, Past President, the National Conference of Insurance Legislators
    • Academic – accompanied by Mr. Robert W. Klein, Ph.D., Associate Professor & Director, Center for Risk Management and Insurance Research, Georgia State University
  • (p1) – Sue W. Kelly (R-NY): I am going to begin by simply saying that I have called this hearing today to review an issue that we feel is of utmost importance to all consumers, and that is the effectiveness of State insurance market conduct oversight.
    • When it comes to insurance needs, consumers need to know that they are not being misled by products and that valid claims will be paid quickly.
    • It is the responsibility of State insurance commissioners to efficiently regulate market conduct with the best interests of the American people in mind.
  • (p2) – Sue W. Kelly (R-NY): Far too often, we have seen State legislatures fail to act upon good ideas of organizations such as the NAIC and NCOIL.
    • It is only when Congress pressures the States, for example, with the NARAB provisions that I fought to include in Gramm-Leach-Bliley, that consumers finally get to see results.
    • There must also be considerable coordination between States, as the varying nature of market conduct regulation from State to State is quite problematic. 
  • CFA – J. Robert Hunter
    • (p14) – It is hard to fix a system that has not been analyzed. 
  • GAO – Richard J. Hillman
    • 2003 0506 – GAO – Insurance Regulation: Preliminary Views on States’ Oversight of Insurers’ Market Behavior, Statement of Richard J. Hillman, Director, Financial Markets and Community Investment – 15p
  • NAIC – Joel S. Ario, Insurance Administrator, Oregon Insurance Division, Secretary Treasurer, National Association of Insurance Commissioners
    • (p8) – Insurance is a different kind of product than either banking or securities or really any of the other financial products out there. It is a more complex kind of product. What kind of policy will be offered to the consumer? What will be the price of the policy? What are the specific policy terms and conditions? What is included, what is excluded from the policy? What does the fine print say? Is a claim valid when it is filed? If it is valid, how much is it worth? These are all questions that are very complicated
      • They often lead to misunderstandings between consumers and insurers
        and they often lead to consumer complaints to our offices.
      • …
      • Our job is to follow those complaints and address them in our marketplace and make that marketplace work for consumers at the local level.
    • (p9) – We will not get the job done that we want to get done by ourselves. You are right that the Congress pushing on us, NCOIL pushed on us, the industry pushing us, Bob Hunter pushing on us; all of those things are important to getting our job done. 

Market Analysis

  • NAIC – A Reinforced Commitment: Insurance Regulatory Modernization Action Plan
    • 2006 (updated) – NAIC – A Reinforced Commitment: Insurance Regulatory Modernization Action Plan – 20p
    • 2003 1105 – GOV (House) – Reforming Insurance Regulation: Making the Marketplace More Competitive for Consumers, Richard H. Baker (R-LA)
      • [PDF-200p, VIDEO-?] 
      • NAIC – Mike Pickens (AL – Insurance Commisioner / NAIC President) – Testimony – 38p
  • We want to publish a market analysis guide with instructions for using complaint data, financial data and market share information to target the most significant market problems.

—  Mike Pickens, Arkansas Insurance Commissioner / NAIC

2003 – SOA – Current Events-Statutory, rsa03v29n147pd – Society of Actuaries – 26p

Deceptive Trade Practices

  • Deceptive
  • DTPA – Deceptive Trade Practices Act
    • Consumers
    • Agents
      • Metropolitan v. Haney
      • Crown v. Casteel
  • 2000 – LR – Deceptive Trade Practices – Consumer Protection Act, by A. Michael Ferrill and Leslie Sara Hyman – 35p
    • In Metropolitan Life Insurance Co. v. Haney,8 a life insurance agent brought DTPA claims against MetLife complaining of inaccurate policy illustrations generated by computer software that MetLife sold to its agents.
    • The Texas Supreme Court revisited this issue in Crown Life Insurance Co. v. Casteel,52 a case involving claims by insurance policyholders against a life insurer and agent and a cross-claim by the agent against the insurer. 
  • 2000 – LR – Insurance Law, by H. Michelle Caldwell – 43p
    • Casteel’s claims arose from Crown Life’s alleged misrepresentations of policy illustrations prepared by Crown Life and presented by Casteel to his clients.
    • Instead, Crown Life’s alleged misrepresentations to Casteel involved internal product information for Casteel’s use in the sales of policies. 234