March 23, 2023
Federal vs State Regulation
States are the primary regulators of insurance markets in the United States. In the past years, large multinational insurers and some federal officials have called for an optional federal regulator of insurance, stating that a single regulator would better allow for product review and approval, as well as establish consistent regulations across the United States. Other insurers – and many state officials – have argued that preservation of state based regulation is essential to ensuring competition, keeping the costs of regulation low, better responding to the needs of consumers, and creating a fairer opportunity for smaller insurance companies to thrive.
The NALC is the only life insurance trade group to actively oppose proposals in Congress to create an optional federal insurance charter. The NALC noted that state regulated insurers survived the financial crisis of 2008 in a much stronger financial positon, as opposed to federally regulated banks. We also believe that federal regulation would increase regulatory burden on insurers, resulting in a consolidation of insurance markets into the control of fewer, larger companies. Federal regulators are also more removed from consumers, meaning that it is more difficult for consumers to get consumer issues resolved on a timely basis. The state based system protects the interests of consumers well, and also allows each state’s regulators to respond to specific concerns in individual markets.
Most states allow consumers to utilize insurance to fund pre-planned funeral expenses. This is known as preneed insurance, and it is frequently distributed through sales channels connected to funeral homes around the United States. As many families do not have the necessary money to pre-pay funeral expenses, preneed (life) insurance has become a favored vehicle to address such needs.
Many of our members write small dollar preneed and final expenses insurance policies, some even as small as a few hundred dollars, providing much needed services to families across the United States. The NALC has been very active at the National Association of Insurance Commissioners(the NAIC), and in state legislatures and regulatory bodies around the country, in promoting sound policies that protect consumers and provide a competitive environment for the sale of preneed insurance products.
Unclaimed Benefits Model Drafting
Over the last several years, some insurers utilized the Social Security Death Master File (DMF) not to determine whether an insured party in a life insurance policy was deceased, but to prevent improper continuation of payment of annuity benefits. This controversy sparked market conduct examinations, and settlement actions by several state insurance departments against a number of large life insurers. Currently, numerous states have commenced legislative action or regulatory rulemaking to address the issue, and the industry’s standard-setting organizations have initiated model law promulgation.
Our members pride themselves on satisfying all legal obligations to their customers, and have not been subject to the multi-state settlement agreements concerning this issue in various states across the country. Very few life insurance policies are unclaimed by beneficiaries; most estimates suggest that over 99 percent of life policies are claimed through the normal beneficiary claim submission process. If a policy goes unclaimed, it is usually because family members are unaware that they are listed as existing beneficiaries.
For many states, the issue is creating a balanced, fair statute or rule that recognizes the differences in behavior of various insurance companies as well as the size of the remaining policies in questions and the cost of the search process. The NALC believes that changing the terms of existing insurance contracts on a retroactive basis is bad public policy and unconstitutional.
Small and mid-sized life and health insurers are vital providers of services to many Americans who may not otherwise receive coverage, but are not in the annuity business, and therefore have not asymmetrically utilized the DMF in the normal course of business. Given this, the NALC advocates on behalf of our members to ensure that unnecessarily costly and burdensome search processes are not required by states.