INSURANCE
DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE

Prompt Payment of and Accrual of Interest on Life Insurance Proceeds

Proposed Amendments: N.J.A.C. 11:2-17.7 and 11:4-41.3

Authorized By: Holly C. Bakke, Commissioner, Department of Banking and Insurance
Authority: N.J.S.A. 17B: 25-11; 17B:27-10 and 17B: 27-10.1

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

Proposal Number: PRN 2002 183

Submit comments by July 19, 2002 to:

Karen Garfing, Assistant Commissioner
Office of Regulatory Affairs
Department of Banking and Insurance
20 West State Street
P.O. Box 325
Trenton, NJ 08625-0325

E-mail: legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

P.L.2001, c. 91, enacted on May 10, 2001 and effective August 8, 2001 (amending N.J.S.A. 17B: 25-11 and 17B: 27-10), requires all individual and group life insurers to pay claims within a specified period of time and to pay interest on overdue claims. The proposed amendments provide that when death benefits become payable by reason of death of the insured, settlement shall be made within 60 days after receipt of due proof of death, and at the option of the insurer, proof of interest of the claimant. The insurer may also require that the individual policy be surrendered. The statutory change also requires that insurers pay interest on overdue claims. The proposed amendments revise current rules addressing Standards for Individual Life Insurance Policy Forms and Unfair Claims Settlement Practices to reflect the statutory change.

N.J.A.C. 11:2-17.7(d). This subsection provides that unless a clear justification exists, or otherwise provided by the policy is proposed for deletion, life insurance claims shall be paid within 30 calendar days from the date proof of loss is received by the insurer and the date the claim is settled. N.J.A.C. 11:2-17.7(h) is proposed which states that otherwise provided by statute or policy, all life insurance claims shall be paid within a maximum period of 60 calendar days after receipt of due proof of death.

Proposed N.J.A.C. 11:2-17.7(h)1 further states that if a claim or a portion of a claim for benefits under a policy requires additional investigation or is denied by the insurer, the claimant shall be notified in writing no later than 45 days following receipt by the insurer of due proof of death, proof of the interest of the claimant, or any other document or information requested by the insurer under the terms of the policy. The notification must state that the claim is subject to additional investigation, and the reason that the claim is being investigated or denied. However, if the investigation relates to fraud, the notification is not required to contain specific reasons for the investigation.

In addition, proposed N.J.A.C. 11:2-17.7(h)2 and 3 requires that any uncontested portion of the claim be paid within 60 days of receipt of due proof of death, proof of the interest of the claimant, or any other document or information requested by the insurer under the terms of the policy. The insurer, upon receipt of any document or information requested relating to a claim or portion of a claim under investigation, shall pay the benefits for which the claim is made or deny the claim within 90 days of receipt of the requested documentation.

The amended rule further provides that payment of a claim or a portion thereof that is not under investigation by the insurer shall be overdue, if not remitted to the claimant by the insurer within 60 days following receipt of due proof of death, proof of the interest of the claimant, or any other document or information requested by the insurer pursuant to the policy.

Proposed N.J.A.C. 11:2-17.7(h)5 provides that payments of a claim or a portion of a claim under investigation or denied that become eligible for payment shall be overdue if not remitted to the claimant by the insurer on or before the 90th day following receipt of due proof of death, proof of interest of claimant or any other document or information requested by the insurer.

Under proposed N.J.A.C. 11:2-17.7(h)6, overdue payments shall bear an annual rate of interest equal to the average rate of return of the State of New Jersey Cash Management Fund, established pursuant to N.J.S.A. 52:18A-90.4, for the preceding fiscal year, rounded to the nearest one-half percent (for example, 5.7 percent would be rounded to 6.0 percent; 5.4 percent would be rounded to 5.5 percent; 5.45 percent would be rounded to 5.5 percent). The Department proposes that insurers may choose either the Fundís State or Other than State rates. However, insurers shall not be permitted to change the rates once chosen.

To further facilitate the processing of a claim, at N.J.A.C. 11:4-41.3(b)10, the Department is also amending the Standards for Individual Life Insurance Policy Forms to require insurers to specify if a claim form is necessary to initiate a claim. All requirements to initiate the processing of a claim must be disclosed in the contract at issue to avoid a delay.

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

The extension from 30 to 60 days during which claims must be settled and the resulting payment of interest on overdue claims will have a positive impact on the general public. The public will be able to predict that claims must be settled within a specific time period and be better able to plan how to disburse funds from life insurance proceeds.

Economic Impact

The proposed amendment will positively impact members of the general public because they will be paid interest on overdue claims. The proposed amendment eliminating the 30 day requirement that claims must be settled would have a negative impact on insurers who fail to pay undisputed claims within 60 days of receipt of proof of claim because they will be required to pay interest on those claims. However, any additional costs are directly imposed by P.L.2001, c. 91.

Federal Standards Statement

A Federal standards analysis is required when any State agency proposes to adopt, readopt or amend State regulations that exceed any Federal standards or requirements, and must include in the rulemaking document a comparison of Federal law.

The Department notes that the subject of these amendments deals with private life insurance coverage in New Jersey, which is exclusively subject to the laws of this State and is not subject to any Federal standards or requirements. Thus, the Department concludes that no formal Federal standards analysis is required.

Jobs Impact

The Department does not anticipate that jobs will be generated or lost as a consequence of the proposed amendments. The Department invites commenters to submit any data or studies regarding the jobs impact of this amended rule together with any written comments on other aspects of the proposal.

Agriculture Industry Impact

The Department anticipates that the proposed amendments will have no impact on the state agriculture industry.

Regulatory Flexibility Analysis

The Department believes that the proposed amendments will apply to few, if any, "small businesses" as that term is defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., because the affected insurers do not employ fewer than 100 full-time employees. To the extent as the amendments may apply to small businesses, the Department believes that they may impose some additional costs on insurers. (See cost of compliance in economic impact above.) The Department does not believe that any such differentiation would be appropriate in that the requirements create a certain timeframe in which the uncontested claims shall be settled. (See compliance requirement in summary above.) While some of the requirements of these amendments may impose additional costs on insurers an exception cannot be created for small businesses because this amendments extend the period during which all insurers have not settle claims from 30 to 60 days pursuant to P.L. 1001, c.91. This statute provides no differentiation in compliance requirements based on business size. To create an exception would be unfair to claimants who need to know with certainty that claims will be settled within the 60 days time frame mandated by statute. The Department believes that small businesses should be able to comply with the requirements utilizing existing staff, professional services or resources as are currently employed in settlement of claims.

The proposed amendments codifies the statutory requirements that insurers pay claims within 60 days after receipt of proof of death. Overdue payments shall bear an annual rate of interest equal to the average rate of return of the State of New Jersey Cash Management Fund, established pursuant to section 1 of P.L.1997, c.281 (N.J.S.A.52: 18A-90.4), for the preceding fiscal year, rounded to the nearest one-half percent. Insurers may elect to use either the Fundís State or Other-than State rates. However, insurers shall not be permitted to change the rate once chosen.

Smart Growth Impact

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

Full text of the proposal follows: (additions indicated in boldface thus; deletions indicated in brackets [thus]:

 

SUBCHAPTER 17: UNFAIR CLAIMS SETTLEMENT PRACTICES

11:2-17.7 Rules for prompt investigation and settlement of claims

(a) - (c) (No change in text)

[(d) Unless a clear justification exists, or unless otherwise provided by the policy, all life insurance claims shall be paid within a maximum period of 30 calendar days. The payment period is defined as the period between the date proof of loss is received by the insurer and the date of claims settlement.]

Recodifing existing (e) - (h) as (d) - (g) (no change in text).

(h) Unless otherwise provided by statute or unless otherwise provided by the policy, all life insurance claims shall be paid within a maximum period of 60 calendar days. The payment period is defined as the period between the date proof of loss is received by the insurer and the date of claims settlement.

1. If a claim or a portion of a claim for benefits under a policy requires additional investigation or is denied by the insurer, the insurer shall notify the claimant of such fact in writing within 45 days of due proof of death. The insurer shall also notify the claimant of the reason the claim is being investigated or denied, except in certain cases involving fraud.

2. Any uncontested portion of a claim shall be paid within 60 days of receipt of due proof of death, proof of the interest of the claimant, or any other document or information requested by the insurer under the terms of the policy.

3. The insurer, upon receipt of any document or information requested relating to a claim or portion of a claim under investigation, shall pay the benefits for which the claim is made or deny the claim within 90 days of the receipt of the requested documentation.

4. Payment of a claim or a portion thereof that is not under investigation by the insurer shall be overdue if not remitted to the claimant by the insurer within 60 days following receipt of due proof ofdeath, proof of the interest of the claimant, or any other document or information requested by the insurer.

5. Payment of a claim or a portion of a claim under investigation or denied that becomes eligible for payment shall be overdue if not remitted to the claimant by the insurer within 90 days following receipt of due proof of death, proof of interest of claimant or any other document or information requested by the insurer.

6. Overdue payments shall bear an annual rate of interest equal to the average rate of return of the State of New Jersey Cash Management Fund, established pursuant to N.J.S.A. 52:18A-90.4, for the preceding fiscal year rounded to the nearest one-half percent. Insurers may choose either the Fundís State or Other-than State rates. However, insurers shall not be permitted to change the rate once chosen.

SUBCHAPTER 41. STANDARDS FOR INDIVIDUAL LIFE INSURANCE POLICY FORMS

11:4-41.3 General standards

(a) (No change.)

(b) The following approval standards shall apply to all individual life insurance forms:

1. - 9. (No change.)

10. All forms shall contain a provision [that] describing the settlement of a claim which becomes payable by reason of the death of the insured [shall be made upon receipt of due proof of death].

i. [The] In addition to due proof of death the the insurer may require surrender of the policy or proof of the interest of the claimant, or both, and shall state in the claims payment provision [that] if such [proof may be] document or information is required. If the insurer requires a claim form to initiate a claim, the provision shall so state.

ii. The insurer [may] shall specify in the claims payment provision [a period of delay for settlement of claims, but in no event shall the period specified exceed two months from the date of the submission of the proof of a claimí that settlement shall be made within 60 days after receipt of the document or informaiton requested in (b)10 above.

11. - 14. (No change.)

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