DAR File No. 28267

Insurance, Administration

R590-98

Unfair Practice in Payment of Life Insurance and Annuity Policy Values

NOTICE OF PROPOSED RULE

DAR File No.: 28267
Filed: 09/30/2005, 10:18
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The rule is being changed to update code citations as per H.B. 374 passed in 2003, correct grammar, and reword for clarification purposes. (DAR NOTE: H.B. 374 (2003) is found at UT L 2003 Ch 298, and was effective 05/05/2003.)

Summary of the rule or change:

The changes include: 1) change references to Chapter 23 to 23a; 2) replace "insured" with "policyholder;" 3) define policyholder; 4) clarify the requirement that insurers request approval from the department to defer payments of policy values; 5) clarify that surrendered policies remain in force to the paid-to-date; 6) require written consent of policyholder to substitute a loan for a loan instead of a surrender; and 7) added an Enforcement Date section (Section R590-98-9) to the rule.

State statutory or constitutional authorization for this rule:

Sections 31A-23a-402 and 31A-2-201

Anticipated cost or savings to:

the state budget:

The changes to this rule will create no changes in the department's work load or revenues and therefore no change to the state budget. Changes deal mainly with numbering and clarification updates.

local governments:

This rule only applies to the relationship between the insurer, insured, and the department. It does not deal with the relationship of these parties to local government. Therefore, there are no costs or savings.

other persons:

The changes to this rule will not change the requirements or duties of insurance licensees to the department or their insureds. The changes simply update code reference numbers, not content, and clarify requirements of licensees.

Compliance costs for affected persons:

The changes to this rule will not change the requirements or duties of insurance licensees to the department or their insureds. The changes simply update code reference numbers, not content, and clarify requirements of licensees.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule will have no fiscal impact on the insurance industry in Utah. D. Kent Michie, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

11/14/2005

This rule may become effective on:

11/15/2005

Authorized by:

Jilene Whitby, Information Specialist

RULE TEXT

R590. Insurance, Administration.

R590-98. Unfair Practice in Payment of Life Insurance and Annuity Policy Values.

R590-98-1. Authority.

This rule is adopted pursuant to Section 31A-2-201[, Utah Code,] which empowers the [Insurance ]commissioner to make rules necessary to implement [the Insurance Code]Title 31A, and pursuant to Section [31A-23-302]31A-23a-402(8), which allows the commissioner to define methods of competition and acts and practices found [by him ]to be unfair or deceptive.

R590-98-2. Scope.

This rule shall apply to all persons transacting insurance under [the Utah Insurance Code]Title 31A.

R590-98-3. Purpose.

The purpose of this rule is to require a prompt response to policyholder requests for policy values and limit the exercise of the statutory deferral option to situations in which the financial stability of the insurer is at risk.

R590-98-4. Definitions.

In addition to the definitions in Section 31A-1-301, the following definitions apply for the purpose of this rule:

A. [As used in this rule ]"Policy Values" [are]means the values to which the [insured]policyholder is entitled upon [application]request for policy loans, withdrawals, or the surrender of the policy and include cash values, accumulated dividends, coupons and other values of a similar nature.

B. [As used in this rule ]"Deferral" means the withholding or delay in payment of [cash]policy values to the policyholder.

C. [As used in this rule ]"Deferral" does not include the withholding or delay in payment to a policyholder of [Variable Life Insurance (VLI)]variable life insurance and variable annuity payments when the value of investment assets on which payments are based cannot be obtained because:

(1) the Securities and Exchange [commissioner]Commission(SEC) has restricted trading;

(2) the stock exchange is closed; or

(3) the SEC permits deferral to protect the policyholder.

D. "Policyholder" shall include, in addition to the definition in 31A-1-301, a certificate holder under a group policy.

R590-98-5. Unfair or Deceptive Acts or Practices.

The following are hereby defined as unfair or deceptive acts or practices:

A. Failing to [respond to]comply with a policyholder request for [cash]policy values within 20 days of receipt of such request.

B. Exercising the nonforfeiture deferral option of Section 31A-22-408(2)[(f)], 31A-22-409(3)(d), or 31A-22-420(5), in response to [an application]a request for policy values unless the financial stability of the insurer is at risk.

R590-98-6. Requirements.

A. [All companies licensed in this State must file with the commissioner a written notice of election to reserve]Before an insurer exercises the right to defer the payment of any policy values, [after demand has been made by a policyholder for payment]the insurer must file a written request with the commissioner. The [notice]request must include an explanation of the reason[(s)] for such action, the steps to be taken by the company to alleviate the situation, the manner in which the deferment is being imposed fairly and equitably on all policyholders, the notice to policyholders as to why the company is taking such action and the anticipated date on which the [cash]policy values are expected to be available.

B. If the policy does not specify policy values between policy anniversaries, such [Basic cash]policy values may be the values shown in the policy nonforfeiture value tables as of the end of the policy year or may be computed by the interpolation of values between policy years[ or by the values shown in the policy nonforfeiture value tables as of the end of each policy year]. If the [latter]former method is used, the company may deduct from the [cash]policy value any premiums required to pay the policy to the next succeeding anniversary date. In no event, may premiums be deducted that will advance the paid-to date past the next succeeding anniversary date. Regardless of the method used, the policy remains in force until the paid-to date.

C. No surrender or ["]service charge["] will be deducted from the policy values unless specifically provided in the policy.

D. Companies may, with written consent of the policyholder, offer a policy loan in lieu of cash surrender as a means to conserve business, but only if the following criteria are strictly adhered to:

(1) The computation of [cash]policy values and premium deductions, if any, will be calculated on the same basis as enumerated in B above.

(2) The policyholder must be informed fully and concisely as to the reasons the company is sending the proceeds of a policy loan as opposed to the [policy value]cash surrender value, an explanation as to the effect the loan will have upon interest charges, premiums, and death benefits, and the procedures for the repayment of the loan.

(3) [Applications for the surrender of a policy for cash value shall be processed within 20 days. ]If a policy loan check is issued in lieu of cash surrender values, the loan shall be processed within 20 days of receipt of the request to surrender. [the]The check for policy loan values must be immediately negotiable[ for either the payment of policy loan values or the partial payment of cash surrender values]. [If the check is issued for policy loan values only, a]A stamped, self-addressed envelope and a cash surrender form must accompany the loan value check, together with appropriate instructions as to how the policyholder should proceed to obtain the full policy surrender value. A request for the balance of the cash surrender value must be processed within ten days of receipt of such request.

R590-98-7. Penalty.

Insurers found in violation of this rule shall be subject to revocation of the Certificate of Authority or such other penalty as determined by the commissioner in accordance with law.

R590-98-8. Separability.

If any provision of this rule or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the rule and the application of such provision to other persons or circumstances shall not be affected thereby.

R590-98-9. Enforcement Date.

The commissioner will begin enforcing the revised provisions of this rule 45 days from the effective date.

KEY: insurance law

[1989]2005

Notice of Continuation April 28, 2004

31A-2-201

ADDITIONAL INFORMATION

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For questions regarding the content or application of this rule, please contact Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.