INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Actuarial Services

"40 States" File and Use Standards and Procedures

Proposed New Rules: N.J.A.C. 11:4-40A

Authorized By: Holly C. Bakke, Commissioner, Department of Banking and Insurance.

Authority: N.J.S.A. 17:1-8.1 and 17:1-15e and P.L. 2001, c. 237.

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-151

Submit comments by June 14, 2002 to:

Karen Garfing, Assistant Commissioner

Department of Banking and Insurance

Regulatory Affairs

20 West State Street

PO Box 325

Trenton, NJ 08625-0325

Fax (609) 292-0896

Email: Legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

P.L. 2001, c. 237, approved August 31, 2001 (the Act), codified at N.J.S.A. 17B:25-18.4, establishes a process whereby insurers licensed in New Jersey may make available for sale or use certain life insurance and annuity forms without obtaining prior approval of the Commissioner of the Department of Banking and Insurance (Commissioner). The Act applies to all individual and group life, individual and group annuity, and variable life and variable annuity policy and contract forms, including related endorsements, riders and applications that have been made available for sale or use in 40 states. The Act does not apply to health insurance forms. The Act requires insurers to submit the form to the Commissioner, accompanied by a certification indicating that the form has been made available for sale or use in 40 states in accordance with current state regulations governing that particular type of product, subject to state variations that do not alter the unique product features or design of the product.

The Act permits insurers to make available for sale or use in New Jersey certain products that might not otherwise be granted approval pursuant to the Department's prior approval process because they do not meet the minimum requirements of Title 17B of the New Jersey Statutes or rules promulgated thereunder. N.J.S.A. 17B:25-18.1 provides, in pertinent part, that any form issued or delivered in this State that is not in compliance with Title 17B shall be deemed to be in such compliance, and shall be interpreted by the courts and among the persons affected by the form as if the form were in such compliance. Similarly, there is case law holding that regardless of the Commissioner's permission to market a form in New Jersey, if a statute creates additional substantive rights in policyholders beyond those provided for by the form, then the courts will enforce the New Jersey policyholder's statutory rights. Accordingly, if the provisions in a form made available pursuant to the Act conflict with or do not meet the requirements of New Jersey law, a court may conclude that the form's provisions must be reformed to meet such requirements.

Insurers should be aware also that forms made available for sale or use pursuant to the Act must be administered in accordance with all applicable New Jersey statutory and regulatory requirements that relate to area other than contract wording (for example, pricing, illustrations and periodic reports requirements). Additionally, form filings submitted pursuant to this procedure must be complete (for example, insurers must provide all possible variations in text for brackets used in the forms, and the Department must actually possess any and all detailed statements and actuarial material that the form indicates are on file with the Department).

These proposed new rules implement the Act by setting forth the "40 states" certification standards and procedures. The new subchapter contains the following provisions:

N.J.A.C. 11:4-40A.1 establishes the purpose and scope of the subchapter.

N.J.A.C. 11:4-40A.2 contains definitions of terms used throughout the subchapter.

N.J.A.C. 11:4-40A.3 sets forth the eligibility criteria for forms under the "40 States" file and use procedure.

N.J.A.C. 11:4-40A.4 contains the procedures for proper submission of forms pursuant to the "40 States" file and use procedure.

N.J.A.C. 11:4-40A.5 sets forth the penalties for an improper certification.

N.J.A.C. 11:4-40A.6 describes the effect of these new rules on forms previously submitted to and acknowledged by the Department pursuant to the "40 States" file and use procedure.

As the Department has provided a 60-day comment period on this notice of proposal, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.

Social Impact

These proposed new rules may have a favorable impact on insurers. These rules implement the Act, which establishes a process whereby insurers may make certain life insurance and annuity forms available for sale or use in New Jersey without obtaining prior approval of the Commissioner. This procedure will enable insurers to bring certain products to the market more readily, thereby benefiting both insurers and policyholders.

As discussed in the Summary above, these rules could have a negative impact on policyholders if a form is made available for sale or use in this State under this process that does not otherwise meet the requirements set forth in Title 17B of the New Jersey Statutes or rules promulgated thereunder.

The Department may be favorably impacted by these rules because the amount of time spent by Department personnel in reviewing certain forms may be reduced.

Economic Impact

The Department does not anticipate that these proposed new rules will result in an adverse economic impact on insurers, policyholders or the Department. The proposed new rules will not adversely impact the public at large. As discussed in the Summary above, these new rules contain standards and procedures for a process by which certain eligible life insurance, annuity and variable contract forms may be made available for sale or use in New Jersey without obtaining the Commissioner's prior approval. Although these rules may not reduce insurer costs associated with form filings, they may reduce the time and/or paperwork insurers currently expend in filing such forms. The Department will continue to incur certain costs associated with reviewing these forms, but may spend less time reviewing forms submitted pursuant to this special process.

Federal Standards Statement

A Federal standards analysis is not required because the Department's proposed new rules are not subject to any Federal standards or requirements.

Jobs Impact

The Department does not anticipate that the proposed new rules will result in the generation or loss of jobs.

Agriculture Industry Impact

Pursuant to N.J.S.A. 4:1C-10.3, the Right to Farm Act, and N.J.S.A. 52:14B-4(a)(2) of the Administrative Procedure Act, the Department does not expect any agriculture impact from the proposed new rules.

Regulatory Flexibility Analysis

Some of the insurers who can take advantage of the proposed file and use procedure may be small businesses as that term is defined under the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The new rules set forth the certification requirements and procedures related to this special file and use process. The costs that these requirements might cause to be incurred are discussed in the Economic Impact above. The Department does not anticipate that insurers will need to engage professional services to comply with these requirements. As this procedure is intended as a voluntary alternative to the process for prior approval by the Commissioner of qualifying life insurance, annuity and variable contract forms, no lesser requirements or exceptions are provided for small businesses.

Smart Growth Impact Statement

The proposed new rules have no impact on the achievement of smart growth and implementation of the State Development and Redevelopment Plan.

Full text of the proposed new rules follows:

SUBCHAPTER 40A. "40 STATES" FILE AND USE STANDARDS AND PROCEDURES

11:4-40A.1 Purpose and scope

(a) The purpose of this subchapter is to implement P.L. 2001, c. 237 (N.J.S.A. 17B:25-18.4), which establishes a special procedure whereby insurers may forego prior approval of certain life insurance, annuity and variable contract forms.

(b) This subchapter shall apply to all individual life insurance, individual annuity, group annuity, group life, variable life and variable annuity contracts to be issued by an insurer authorized to do business in this State. This subchapter shall not apply to any health insurance policy or contract forms or benefits, including specified disease or critical illness policies, contracts or benefits.

 

11:4-40A.2 Definitions

The following words and terms, as used in this subchapter, shall have the following meanings unless the context clearly indicates otherwise:

"Annuity" means all contracts meeting the definition set forth at N.J.S.A. 17B:17-5.

"Available for sale or use" means that the insurer has complied with the state's laws, regulations, and procedures to allow the insurer to sell or use the form in that state.

"Commissioner" means the Commissioner of the Department of Banking and Insurance.

"Department" means the Department of Banking and Insurance.

"Form," "contract form" and "policy form" mean all annuity contract forms; all life insurance policy and contract forms; all variable contract forms; and all group insurance certificates as defined within this subchapter, including endorsements, riders and application forms.

"Health insurance" means all policies, contracts and benefits meeting the definition set forth at N.J.S.A. 17B:17-4, including specified disease and critical illness policies, contracts and benefits as defined at N.J.A.C. 11:4-53.

"Improper certification" means providing any misrepresentation or false statement material to a certification form.

"Life insurance" means all policies and contracts meeting the definition set forth at N.J.S.A. 17B:17-3.

"Responsible officer of the insurer" means a corporate officer of the level of vice president or higher, or of equivalent title within the insurer's structure, who is either the actuary of the insurer with responsibility for the type of form filed, or the individual with responsibility for managing the form filing process for the insurer with regard to the type of form filed.

"Unique product features or design" means that all the essential and material requirements, terms, conditions and standard provisions of the forms are the same, and any differences are non-material. Permissible differences include the following: unique requirements mandated by a state's law, which law shall be identified as part of the form submission; sentence order; synonyms used (for example, "period" instead of "term," "face amount" instead of "insurance amount"); and quantitative differences of no more than 10 percent (for example, one policy contains a $50.00 charge, while another contains a $55.00 charge). Changes in standard contract provisions (for example, contestability, free look, grace period, entire contract provisions) shall be considered impermissible differences in a product's unique features or design.

"Variable contracts" means all contracts meeting the definition set forth at N.J.S.A. 17B:28.

11:4-40A.3 Eligibility

(a) Forms submitted to the Commissioner on the basis that they have been made available for sale or use in 40 states, subject to state variations that do not alter the unique features or design of the product, shall be eligible for sale or use pursuant to the requirements of this subchapter.

(b) Forms made available for sale or use pursuant to P.L. 2001, c. 237 shall be administered in accordance with all applicable New Jersey statutes and rules including, but not limited to:

    1. Claim procedures, N.J.S.A. 17B:25-11;
    2. Flexible factors, N.J.A.C. 11:4-47;
    3. Fraud warning statement, N.J.S.A. 17:33A-6c;
    4. Gender blended mortality tables, N.J.A.C. 11:4-22.5;
    5. Illustrations, N.J.A.C. 11:4-52;
    6. Life and Health Insurance Policy Language Simplification Act, N.J.S.A. 17B:17-17 et seq.;
    7. Loan notices, N.J.S.A. 17B:25-8 and 25-10.1 and N.J.A.C. 11:4-41.3(b)7;
    8. Market value adjustments, N.J.A.C. 11:4-44.5(a)2 and 3;
    9. New Jersey Fair Credit Reporting Act, N.J.S.A. 56:11-33;
    10. Periodic reports, N.J.A.C. 11:4-45;
    11. Persistency bonuses, N.J.A.C. 11:4-48.4(a)2;
    12. Prospectus and actuarial memorandum, N.J.A.C. 11:4-40.6(a)1 and 2;
    13. Standard nonforfeiture law, N.J.S.A. 17B:25-19 and 20; and
    14. Trade practices and discrimination, N.J.S.A. 17B:30-1 et seq.

11:4-40A.4 Submission procedures

(a) Submissions pursuant to N.J.A.C. 11:4-40A.3(a) shall include the following:

1. For each form submitted, a separate certification memorandum signed by a responsible officer of the insurer, which shall include: a statement that the form has been made available for sale or use in 40 states, subject to state variations that do not alter the unique features or design of the product; and the form number of the form to which it applies.

i. The certification shall be acknowledged by a responsible officer of the insurer. The acknowledgement process shall be the same as that which applies to documents for recording instruments conveying or affecting interests in real estate in this State pursuant to N.J.S.A. 46:14-2.1 et seq;

2. A listing by state that indicates the method by which the form was approved for use in other states (for example, whether affirmatively approved, deemed approved, or exempt from review);

3. A statement of all variations of text for state specific versions, annotating the actual text or terms that vary from the version approved in all states, and from the version submitted for review pursuant to this subchapter;

4. A statement of all filing conditions imposed by other states that have approved the form, and the identities of the other states;

5. An Initial Submission Data form required by N.J.A.C. 11:4-40. The Request Type Code referred to in the Data Form shall be "40." The form shall be filled in for complete specimen issue, including any necessary schedule(s); and

6. A submittal letter, which shall specify the issue ages and intended market for the form.

(b) If any state specific variation in form text modifying a provision that is not in compliance with New Jersey law results in the provision becoming compliant with New Jersey law, then such variation shall be included in the version of the form submitted pursuant to this subchapter.

(c) The Department shall acknowledge receipt of the form and a proper certification by providing the insurer with such acknowledgement by first class mail within 30 days of receipt.

(d) If the Department is not able to determine whether the form submitted satisfies all of the eligibility requirements set forth at N.J.A.C. 11:4-40A.3, the Department shall convert the submission into a prior approval submission and the 60-day review period shall commence at the expiration of the 30-day period within which the 40-state filing must be acknowledged.

(e) If the Department is not able to determine whether the submission satisfies all of the procedural requirements set forth in this section, the Department shall return the form to the insurer for non-action.

11:4-40A.5 Penalties

(a) If the Commissioner determines that a certification submitted to the Department by an insurer pursuant to this subchapter is an improper certification, the insurer shall be subject to the following penalties specifically determined by the Commissioner in consideration of the severity of the violation based on the potential adverse impact to the public and whether it is the insurer's first such violation:

1. A fine not to exceed $50,000; and

2. A maximum penalty of $1,000 per policy issued on a form determined to be improperly certified pursuant to this subchapter.

(b) If, after notice and a hearing pursuant to the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. and 52:14F-1 et seq., and the Uniform Administrative Procedure Rules, N.J.A.C. 1:1, an insurer is found by the Commissioner to be in violation of this subchapter, the form may be disapproved, and, in addition to any other penalties that may be imposed pursuant to law, the Commissioner may bar the insurer from participating in the certification process pursuant to this subchapter for a period not to exceed one year.

11:4-40A.6 Effect on previously acknowledged forms

(a) Insurers that received an acknowledgement from the Commissioner for a form submitted pursuant to P.L. 2001, c. 237 prior to the effective date of this subchapter, shall submit to the Department the information required by N.J.A.C. 11:4-40A.4(a)2, 3, 4 and 6. Such information shall be postmarked within 30 days of the effective date of this subchapter or the Commissioner shall deem the form withdrawn from sale or use upon the 30th day.

(b) Any form and certification submitted pursuant to P.L. 2001, c. 237 prior to the effective date of this subchapter, which was acknowledged by the Commissioner but does not meet the requirements of this subchapter, shall be deemed withdrawn and the form may not be available for sale or use.

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