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ALU 202 > Ch 11 Impact of legislation & regulation on life insurance industry > Flashcards

Ch 11 Impact of legislation & regulation on life insurance industry Flashcards

1
Q

regulations

A

help in enforcement of law, interpretation of law
-protect consumers, help individuals and corporations better understand how law is intended to operate

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2
Q

unitary system

A

power concentrated at national level, little power in political subdivisions

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3
Q

confederation

A

union of equal states

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4
Q

federal system

A

national govt holds significant power, but smaller political subdivisions also hold power
US and Canada

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5
Q

US Congress

A

passes laws impacting many aspects of financial services

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6
Q

state legislatures

A

primary source of insurance legislation, enacting a significant body of legislation that regulates life insurance industry, including licensing, solvency, market conduct review

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7
Q

Canada

A

laws impacting life insurance passed by Canadian Parliament and legislatures at provincial level

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8
Q

McCarron Ferguson Act 1945

A

continued regulation and taxation of insurance by states in public’s best interest
-state legislatures pass statutes, state insurance depts enforce them, write regulations, and guidance
-laws passed are recommended through model acts from NAIC

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9
Q

Dodd Frank Act 2009

A

created Federal Insurance Office responsible for international insurance agreements, data collection and research
-protect financial system from systemic risk presented by financial institutions too big to fail

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10
Q

Financial Stability Oversight Council FSOC

A

broad authority to identify and monitor systemic risks

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11
Q

International Assoc of Insurance Supervisors IAIA 2008

A

regulator for US insurers

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12
Q

HIPAA
Health Insurance Portability and Accountability Act 1996

A

designed to improve efficiency in health care through the standardization of electronic data interchange as well as to provide security measures to protect health information and its disclosure
-protecting against unauthorized disclosure of confidential health info, protects against disclosure outside of normal UW process

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13
Q

US Dept of Health and Human Services HHS

A

issued regulations in 2003 establishing set of national standards for protection of certain health information

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14
Q

Privacy Rule

A

standards address the use and disclosure of individual’s health information by organizations subject to Privacy Rule as well as standards for individual’s privacy rights to understand and control how their health information is used

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15
Q

Office for Civil Rights OCR

A

responsible for implementing and enforcing the Privacy Rule w/ respect to voluntary compliance activities and civil money penalties

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16
Q

Protected health information PHI

A
  1. relates to individual’s past, present or future physical or mental health or condition
  2. relates to provision of health care to individual
  3. relates to past, present or future payment for provision of health care to individual
  4. identifies individual or for which there is a reasonable basis to believe it can be used to identify the individual
  5. includes any common identifiers (name/address/DOB/SSN)
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17
Q

Canadian Life & Health Insurance Assoc CLHIA

A

developed a comprehensive set of privacy guidelines
-not permitted w/o individual’s express written consent

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18
Q

Personal Information Protection & Electronic Documents Act PIPEDA

A

establishes ground rules for how private sector organizations can collect, use or disclose personal info in the course of commercial activities

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19
Q

USA Patriot Act

A

enhances authority of US law enforcement for the state purpose of investigating and preempting potential terrorist acts against US
-requires anti-money laundering programs

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20
Q

STOLI

A

Individual solicited w/ offer for free insurance for short duration, purchases policy, finances it w/ loan, intent is always to sell policy in life settlement transaction when loan matures, financing is bridge to life settlement market

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21
Q

Issues in STOLI

A
  1. lack of insurable interest
  2. legality: not in best interest of citizens, states enacting laws against
  3. loan: payments labeled as loans subject to recharacterization by IRS
  4. hybrid financing: masks intent to settle, or can force settlement
  5. insurance capacity: diminishes future ability to obtain coverage
  6. SEC/NASD action: policies are financed and packaged for sale to investors, can be deemed a security needing regulation
  7. rebating: promised participation fee or offer of free insurance protection
  8. legal complexity
  9. health/privacy issues
  10. discrimination: targeted at specific age group
  11. congressional action regarding tax treatment of life insurance: Congress can remove tax advantages of life insurance
  12. fraud
22
Q

Canada’s Uniform Life Insurance Act

A

specific rules on insurable interest
-yes: own life, children, grandchildren, spouse, dependent, corporations, associations, trusts
-no: if no insurable interest, policy void
unless PI consents in writing

23
Q

CHOLI

A

leveraged, w/ loan proceeds to finance large block of CHOLI on donors’ lives or lives of parties unrelated to charity, who donate their insurability to charity

24
Q

COLI

A

purchased to fund post-retirement benefit liabilities for key employees
-cash value accumulates tax free, death benefit proceeds income tax free
-used to recover all costs associated w/ benefit program
-Best Practices Act: restricts to class of highly compensated employees, must provide notice and obtain consent, establish disclosure and record keeping requirements, tax imposed if requirements not met

25
Q

viatical

A

company purchases policy from terminally ill, payments made by viatical settlement companies reflect significant discounts of face amount depending on life expectancy
-ADB and viatical settlements for terminally ill and chronically ill exempt from federal income tax

26
Q

life settlement or senior settlement

A

purchase of policies on lives of insureds who are typically elderly but healthy
-owners get more than surrendering for CV
-NAIC model law from 2007 requires companies and brokers to have license for viatical settlement agreements

27
Q

Life Settlement Model Act

A

defines STOLI and make it a fraudulent act to enter into any plan or practice that involves STOLI, prohibits misuse of trusts and premium financing, prohibits sale or transfer of policy for 2 years

28
Q

state guaranty association

A

protects policyholders from insolvent insurers, state govts regulate insurance companies and monitor solvency of insurers
-licensed life and health insurers must be members, not fraternal

29
Q

secondary guarantee

A

keeps an insurance policy in force and guarantees death benefit, even when policy would otherwise lapse because of lack of cash value, when certain contractual requirements are met

30
Q

specified premium guarantee

A

provides policyholder w/ guaranteed death benefit as long as pays specified premium each year
-allows for early, late payment of premiums

31
Q

shadow account product

A

alternative or hypothetical account value is calculated using an alternative set of expense charges, cost of insurance and interest
-allows for early, late payment of premiums

32
Q

Regulation XXX

A

required companies to increase reserves for secondary guarantee features found on UL policies

33
Q

Actuarial Guideline AXXX

A

developed to interpret Regulation XXX, increased reserving requirements for secondary guarantees using the shadow account approach as well as for specified premium guarantees that are pre-funded

34
Q

Principles-based reserving PBR

A

alternative approach to establishing reserves, allows insurers to establish reserves based on individualized statistical modeling, rather than a stated, rate-based formula to more adeptly right size reserves by insurance product type

35
Q

Actuarial Guideline 48

A

bring states into compliance w/ uniform standards of financing reserves by providing greater specificity to the actuarial methods companies were required to calculate reserves

36
Q

retaliatory premium taxes

A

states w/ low premium tax rates can impose a retaliatory tax against insurance companies from high premium tax states who are conducting business in a low premium tax state

37
Q

UW Issues

A
  1. Travel: legislative activity passed by states restricting adverse UW actions based on lawful past or future travel activities, adverse decisions must comply w/ Unfair Trade Practices standards, 15 states passed legislation
  2. Genetic Testing
38
Q

Genetic Information Non Discrimination Act 2008 - US

A

applies to health insurers and employers, not life, disability or LTC
-amendment of HIPAA includes LTC
-state genetic UW laws focused on restrictions related to health insurers

39
Q

Genetic Non Discrimination Act GNDA
Canada

A

employers may not require genetic testing of employees, nor may businesses deny services to customers based on results of genetic tests, nor may contracts require genetic testing
-appealed to Supreme Court, no decision rendered currently

40
Q

motivation for mergers/acquisitions

A
  1. desire to expand distribution beyond that which is capable through organic growth
  2. desire to boost shareholder value
  3. desire to fend off hostile takeover attacks
  4. drive to enter markets not currently served
  5. desire to reduce operating expenses
  6. need to increase capital
41
Q

3 ways life insurance can do business

A
  1. stock company - stockholders own company
  2. mutual company - policyholders own mutual company
  3. mutual holding company - hybrid form
42
Q

demutualization

A

private, member owned company changes its structure to become a publicly-traded company owned by shareholders

43
Q

mutual holding company conversion

A

mutual insurance company becomes stock insurance company wholly owned by a mutual holding company
-policyholder contractual rights remain w/ stock life insurance company and membership rights transfer to mutual holding company
-used to avoid hostile takeover attempts

44
Q

Sherman Antitrust Act of 1890

A

illegal to conspire to restrain interstate and foreign trade

45
Q

Hart-Scott Rodino Antitrust Improvement Act

A

easier for regulators to investigate mergers for antitrust violations

46
Q

Securities & Exchange Commission SEC

A

enforce the securities laws passed, to promote stability in markets and protect investors
-access to basic facts about investment before purchasing
-public companies must disclose meaningful financial and other info to public

47
Q

Securities Act of 1933
Securities Exchange Act of 1934

A
  1. companies publicly offering securities for investment dollars must tell public truth about their businesses, the securities they are selling and risks involved in investing
  2. people who sell and trade securities, brokers, dealers, exchanges, must treat investors fairly and honestly, putting investors’ interests first
48
Q

Financial Industry Regulatory Authority FINRA

A

dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services
-monitors life insurance business
-prevent fraud by subjecting producers to rigorous licensing and continuing education requirements
-spot examinations of client files and marketing materials used w/ consumers

49
Q

Legislation and Regulation that Protects Consumers

A
  • HIPAA
  • model NAIC laws governing viatical transactions: protects medical info, prevents fraud
  • FINRA: prevents fraud of producers
  • rebating rules
  • state guaranty associations
  • Regulation XXX & AXXX
50
Q

American Council of Life Insurers

A

represents members before federal and state policymakers, insurance depts and courts

51
Q

National Association of Insurance and Financial Advisors NAIFA

A

nonprofit that represents producers and associates
-advocate for positive legislative and regulatory environment, enhance business and professional skills and promote ethical conduct of its members

52
Q

Association of Advance Life Underwriting
AALU

A

committed to preserving insurance through political involvement
-keeps members informed of latest regulatory and business developments affecting advanced life UW products and services
-monitors bills, proposed regulations and court cases that affect clients, business owners and professionals

ALU 202 (15 decks)

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