DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Life/Health/Annuity Forms
Proposed Amendments: N.J.A.C. 11:4-40.3, 40.5 and 40.9
Authorized by: Karen L. Suter, Commissioner, Department of Banking and Insurance.
Authority: N.J.S.A. 17:1-8.1 and 17:1-15e.
Proposal Number: PRN 2001-257.
Submit comments by August 1, 2001 to:
FAX: (609) 292-0896
E-mail: legsregs@dobi.nj.gov
The agency proposal follows:
Summary
The Life and Health Insurance and Health Maintenance Organization Form Approval Reform Act ("the Act") (P.L. 1995, c. 73; codified as N.J.S.A. 17B:25-18.1 et seq.), signed into law on April 10, 1995, requires all life and health insurance policies and contracts, all annuities and all variable contracts subject to Title 17B of the New Jersey Statutes, to be filed with and approved by the Commissioner of the Department of Banking and Insurance ("Commissioner").
Prior to enactment of the Act, the Standard Nonforfeiture Law for Individual Deferred Annuities ("SNFL") at N.J.S.A. 17B:25-20 exempted from this review and approval process group annuity forms and funding agreements issued in the general account. As a result, Title 17B contains no requirements that are applicable to standard provisions in these forms. In 1981, N.J.S.A. 17B:25-20p amended the SNFL so that it would apply to certain group annuity plans (that is, group annuity plans providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code). The Department, however, has never established standards or reviewed these types of group annuity forms. Due to the sophisticated nature of the products and the parties negotiating their purchase, it has been the Department's position that regulatory jurisdiction over these products is unnecessary.
Unlike group annuity forms and funding agreements issued in the general account, group annuity forms and funding agreements issued in the separate account have always been subject to the Department's review and approval process. These form types are regulated by N.J.S.A. 17B:28-1 et seq., which requires disclosure of the variable nature of the product. While the Department believes that these disclosure requirements are necessary, the Department does not believe that they enhance a transaction that usually involves a well-represented, sophisticated buyer. The Department has concluded that the enforcement of these generic disclosure statements does not justify the delay associated with the form filing process.
The Department does not believe that the prior approval process, when applied to group annuity forms and funding agreements, provides any meaningful protection to policyholders. Unlike individual annuity contracts, the terms of group annuity contracts and funding agreements are generally negotiated between the insurer and policyholder with adequate representation of both parties. Moreover, the Department has never been aware of any complaints or actions against insurers that would necessitate regulation in this area. The Department does believe, however, that exempting such forms from the review and approval process would be advantageous to insurers and policyholders because the forms would be permitted to enter the marketplace more readily.
Accordingly, the Department is now proposing to amend N.J.A.C. 11:4-40 to exempt from the review and approval process annuity contract forms, other than individual annuity contracts and synthetic guaranteed investment contracts ("synthetic GICs"). (A synthetic GIC is defined at N.J.A.C. 11:4-46.3 as a group annuity contract or other agreement that establishes the insurer's payment obligations by reference to a portfolio of assets neither owned by nor in the possession of the insurer). Because of the unique nature of the synthetic GIC transaction, these forms will continue to be subject to the requirements of N.J.A.C. 11:4-40, as well as the additional requirements applicable to such forms set forth at N.J.A.C. 11:4-46.
The Department's proposed amendments include the following:
N.J.A.C. 11:4-40.3(c) is being added specifically to exempt annuity contracts, other than individual contracts and synthetic GICs, from compliance with the requirements of Subchapter 40.
N.J.A.C. 11:4-40.5(a) is being amended to include language excepting from approval by the Commissioner those forms specifically exempt from compliance with Subchapter 40. This subsection is also being amended to correct a mistaken citation to the Department's file and use rules.
N.J.A.C. 11:4-40.9(a) is being amended to indicate that forms that have been specifically exempt from compliance with Subchapter 40 are further exempt from the requirements of the "file and use" process set forth at N.J.A.C. 11:4-40.9 and .10.
N.J.A.C. 11:4-40.9(g), which states that group annuity forms are eligible for the "file and use" process, is being deleted.
N.J.A.C. 11:4-40.9(h) is being recodified as N.J.A.C. 11:4-40.9(g).
Social Impact
These proposed amendments should have a favorable impact on insurers, policyholders and the Department. Insurers would be alleviated of the administrative burden of filing these group annuity contract forms with the Department. Policyholders will be favorably impacted in that they may enter such annuity contracts without the delay of a form filing process. The Department will not be required to use its resources conducting an unnecessary review process for this type of form.
Economic Impact
These proposed amendments should have a favorable economic impact on insurers, policyholders and the Department. Insurer costs of filing group annuity contract forms with the Department will be eliminated, as will the Department's costs to review such forms. Speedier entry of such forms into the marketplace may be economically advantageous to policyholders as well as insurers.
Federal Standards Statement
A Federal standards analysis is not required because these proposed amendments are not subject to any Federal standards or requirements.
Jobs Impact
The Department does not anticipate that these proposed amendments will result in the generation or loss of jobs.
Agriculture Industry Impact
The proposed amendments have no impact on the agriculture industry.
Regulatory Flexibility Statement
A regulatory flexibility analysis is not required because the insurers to whom these proposed amendments apply do not employ fewer than 100 full-time employees, and therefore are not "small businesses" as that term is defined by the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq.
Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):
11:4-40.3 Life/health/annuity form approval standards
(a) - (b) (No change.)
(c) Annuity contracts, other than individual contracts and synthetic guaranteed investment contracts, are exempt from compliance with this subchapter.
11:4-40.5 Life/health/annuity form approval procedures
(a) No insurer shall deliver or issue for delivery in this State any form unless the form has been approved by the Commissioner pursuant to the procedures set forth in this subchapter, except for those forms eligible for submission to the Commissioner pursuant to the file and use system described in this subchapter at N.J.A.C. 11:4-[40.8] 40.9 and [40.9] 40.10 or specifically exempt from compliance with this subchapter.
(b) – (g) (No change.)
11:4-40.9 File and use eligibility
(a) An insurer may deliver or issue for delivery in this State a form providing life, health or annuity benefits, and accompanying rates if applicable, without obtaining prior approval from the Commissioner pursuant to this subchapter provided the form is set forth in this section as a type eligible for file and use and is filed with the Commissioner pursuant to the procedures set forth at N.J.A.C. 11:4-40.10, or the form is specifically exempt from compliance with this subchapter.
(b) - (f) (No change.)
[(g) The following types of group annuities forms shall be eligible for file and use pursuant to this section:
1. Contracts;
2. Certificate forms; and
3. Applications.]
[(h)] (g) In the month of September or October of each year, the Department shall conduct a hearing pursuant to P.L. 1995, c.73 for the purpose of determining the specific types of forms eligible for file and use pursuant to this section.
1. (No change.)
2. The notice published in the New Jersey Register and as otherwise provided pursuant to [(h)1] (g)1 above shall also request that persons who wish to testify at the hearing provide the Department with timely notice of this intention, including a brief summary of the subject matter of their testimony.
3. – 9. (No change.)