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Eight for ’08: Insurance Measures in Review

"Eight for '08" reviews in an in-depth and readable fashion key state and federal legislative efforts on insurance topics such as catastrophic loss, suitability, bad faith civil liability, health care reform and federal regulatory efforts. The commentary highlights common themes and provides a singular reference for significant legislation and various related regulatory pronouncements that will affect the insurance industry for years to come.
 
INTRODUCTION
 
At the risk of stating the obvious, 2008 has been an historic and memorable year. From the historic presidential election, creating for many a new opportunity for hope, to the floods in the Midwest or the collapse of Wall Street, resulting for many in lost opportunity and fear, 2008 will be a year that is hard to forget. In addition to the major headlines of the year, 2008 was also a memorable year for state and federal efforts pertaining to insurance. For some, it was a year creating opportunity for hope; for others, 2008 resulted in lost hope and lost opportunity. In honor of this memorable year for insurance regulation – memorable for that which occurred as well as that which did not – “Eight for ‘08” discusses these measures by way eight categories: (1) Life Settlement Agreements/Stranger-Originated Life Insurance; (2) Suitability; (3) Bad Faith Civil Liability; (4) Property and Casualty: Flood and Other Natural Disaster; (5) Health (Autism, Mental Health Parity, and Accessibility/Affordability); (6) Producer Licensing; (7) Interstate Compact; and, (8) Federal Regulatory Effort.
 
LIFE SETTLEMENT AGREEMENTS and STRANGER-ORIGINATED LIFE INSURANCE

The year 2008 proved legislatively significant for the viatical and life settlement industries. Some sixty bills were introduced in legislatures across the nation, with fourteen of those bills signed into law and two vetoed. The bills which passed employed varying means to deter fraudulent practices and, in one creative instance, expressly established “shared responsibility” among all parties to protect consumers and prevent stranger originated life insurance (STOLI) policies. In virtually all Acts adopted during 2008, STOLIs were specifically defined and listed as a prohibited fraudulent life settlement act or activity. During 2008, several states also passed legislation affecting suitability determinations in annuity transactions. Concurrently, the Financial Industry Regulatory Authority adopted new suitability standards for variable annuities and the U.S. Securities and Exchange Commission pressed forward with federal regulation of equity-indexed annuities by voting 4-to-1 to adopt proposed rule 151A for application to annuities issued on or after January 12, 2011. 
 
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BAD FAITH CIVIL LIABILITY
 
Since the adoption of Washington’s Insurance Fair Conduct Act of 2007, two more states adopted legislation addressing insurer conduct during 2008. However, “Eight for ‘08” observes that the difference in approaches between these bills “brings to mind the age-old question of how one approaches life, by looking at a glass as half-empty or as half-full; and, now, how one views insurers, as good faith actors or bad faith actors.”
 
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PROPERTY AND CASUALTY: FLOODS AND OTHER NATURAL DISASTERS 
 
Much of the Nation was effected by various storms and flooding throughout 2008. However, the Midwest suffered the brunt of the resulting flood damage. Iowa alone suffered estimated losses of approximately $4 Billion in damage to agriculture and $4 Billion in damage to businesses. “Eight for ‘08” analyzes the varying regulatory means by which these states addressed these issues. Various coastal states also received new law to address hurricane hazard. For example, Alabama passed two significant measures during 2008, to authorize captive insurance companies to sell residential insurance along the Alabama coast and to codify the legal authority for Alabama’s insurer of last resort. Meanwhile, Louisiana passed legislation authorizing insurers to petition the Insurance Commissioner to increase property policy deductibles, among other measures. Florida passed a “Homeowner’s Bill of Rights Act,” to address an extensive range of insurer conduct, rate regulation and appeal, and a host of other issues. A federal effort to tinker with property and casualty insurance turned out to be somewhat of a non-event – the simple reauthorization of the National Flood Insurance Program until March 2009.
  
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Accessible/Affordable Health Care
 
No end-of-the-year wrap-up would be complete without a discussion on health care reform and access to affordable health care. First, several states passed measures to require insurance coverage for individuals with autism. With the addition of legislation in these states, some 27 states and the District of Columbia now have enacted legislation to afford coverage to insureds afflicted with autism spectrum disorders. Second, Congress’ $700 Billion emergency economic assistance bill served as one of the most memorable legislative events in 2008 for parity of mental health coverage. The passage of this Act ironically shared the spotlight with one of the 110th Congress’ most anticipated pieces of health insurance legislation, H.R. 1424, the Paul Wellstone and Pete Domenici Mental Health and Addiction Equity Act. “Eight for ‘08” does not miss the opportunity to observe that, “The irony lies in the fact that H.R. 1424 was used as a legislative vehicle to bail out Wall Street.” Third, several state legislatures passed measures designed to provide affordable access. For his State’s efforts, a concise New Jersey Governor Corzine praised the Legislature for “actually doing something” about universal health care. In sharp contrast, the populous of another state was asked to vote for a non-binding advisory referendum.
  
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PRODUCER LICENSING
 
Producer licensing and regulation continued to receive attention during 2008. The U.S. House of Representatives passed by voice vote the National Association of Registered Agents and Brokers Reform Act of 2008 (NARAB II) only to lose momentum in the Senate. At the state level, Californians saw new law to clarify the distinction between a broker and an agent with a statutory rebuttable presumption for qualification of a producer as a “broker.”
  
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INTERSTATE COMPACT
 
The Interstate Insurance Product Regulation Commission welcomed several new member states during 2008, with these states enacting the Model Interstate Insurance Product Regulation Compact. The Commission continued its efforts to expand its charge, to provide a uniform central filing point under one set of rules, for speed-to-market product review for asset-based insurance products to meet the demands of a competitive global insurance market while maintaining a heightened level of consumer protection. At the federal level, in contrast, there was much discussion regarding insurance industry regulatory reform. But, as has been the case time and again, there was more action and political intrigue than solid results.
  
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CONCLUSION
 
Year 2008 saw no shortage of legislative proposals, at both the state and federal level, which will have a lasting effect upon the insurance industry.   State legislatures and agencies, as well as the Congress and the SEC, diligently sought to address eight areas of significant interest to the industry discussed in this commentary. Indeed, 2008 will likely be cast as a trend-setting year for each of these topics and as a catalyst for related topics throughout 2009.