Regulatory Impact Statement for new 11 NYCRR 226 (Insurance Regulation 200).

1. Statutory authority: The Superintendent's authority for promulgation of this rule derives from sections 202 and 302 of the Financial Services Law ("FSL") and sections 301, 316, 1102, 1104, 2601, 3240 (Unclaimed benefits), 4521, and 4525 and Article 24 of the Insurance Law.

FSL section 202 establishes the office of the Superintendent and designates the Superintendent to be the head of the Department of Financial Services.

FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded by the Insurance Law, the Banking Law, the Financial Services Law, or any other law of this state and to prescribe regulations interpreting, among others, the Insurance Law.

Insurance Law section 316 authorizes the Superintendent to promulgate regulations to require an insurer or other person or entity that makes a filing or submission with the Superintendent, pursuant to the Insurance Law, to do so by electronic means.

Insurance Law section 1102 authorizes the Superintendent to refuse to issue or renew an insurer's license if such refusal will best promote the interests of the people of this state.

Insurance Law section 1104 authorizes the Superintendent to revoke the license of a foreign insurer if such revocation is reasonably necessary to protect the interests of the people of this state.

Insurance Law Article 24 regulates trade practices in the insurance industry by prohibiting practices that constitute unfair methods of competition or unfair or deceptive acts or practices.

Insurance Law section 2601 prohibits insurers from engaging in unfair claim settlement practices, including the failure to adopt and implement reasonable standards for prompt investigation of claims.

Insurance Law section 3240 (Unclaimed benefits) requires insurers to compare life insurance policies against the federal death master file to identify potential matches of their insureds or account holders and to undertake a good faith effort to confirm the death of the insureds and locate beneficiaries. Section 3240(j) authorizes the superintendent to promulgate rules and regulations to implement the statute.

Insurance Law section 4521 authorizes the Superintendent to revoke or suspend a fraternal benefit society's license if such society is not carrying out its contracts in good faith.

Insurance Law section 4525 applies Articles 3 and 24 of the Insurance Law to authorized fraternal benefit societies.

2. Legislative objectives: Beginning in 2011, the Department investigated allegations of unfair claims and trade practices by authorized life insurers and fraternal benefit societies (collectively herein, "insurers") in connection with claims and the location of beneficiaries. The Department was concerned that many insurers had not adopted or implemented reasonable procedures and standards to investigate claims and locate beneficiaries with respect to death benefits due under policies and accounts. In particular, there were instances in which a death had occurred and no claim had been filed, but premiums continued to be deducted from the account value or cash value until the policy lapsed. In other instances, the policies or accounts may simply have remained dormant after death. In these instances, a valid death benefit was either not paid or distributed or was delayed.

The Department met with several insurers that have substantial writings in New York to discuss past and current claim and death benefit payment practices. Some insurers had used the U.S. Social Security Administration's Death Master File ("SSA Master File") to confirm the death of contract holders so that they could cease making annuity payments, but had not used the SSA Master File to determine whether any death benefit payments were due under insurance policies or other accounts.

The Department sent a letter, dated July 5, 2011, to every insurer requesting the submission of a special report, pursuant to Insurance Law section 308 (the "308 Letter"). The 308 Letter required each insurer to submit a report that included a narrative summary of the SSA Master File cross-check procedures implemented by the insurer; the overall results of the SSA Master File cross-check; the current procedures utilized by the insurer to locate beneficiaries, and a seriatim listing of death benefits paid as a result of the SSA Master File cross-check. After matches were identified, each insurer was directed to provide to the Superintendent a final report updating the actions it had taken to investigate the matches to determine whether a death benefit payment was due, and to describe the procedures it had implemented to locate the beneficiaries and make payments, where appropriate. To date, over $812 million has been paid nationwide to beneficiaries, including more than $241 million that was paid to New York beneficiaries.

The 308 Letter was a one-time comparison to the SSA Master File. This rule was promulgated on an emergency basis to require insurers to continue to make the cross-checks on an ongoing basis. This rule requires insurers to continue to perform regular cross-checks using the SSA Master File, or other database or service acceptable to the Superintendent, and to request more detailed beneficiary information (e.g., social security number, address) to facilitate locating and making payments to beneficiaries.

The regulation also addresses another matter of concern. The Department regularly receives requests from family members and other potential beneficiaries requesting assistance in locating lost policies. Although certain fee-based services have been available to provide some assistance, there has not been an efficient, no-fee mechanism by which the Department could assist the public.

The Department has now developed a Lost Policy Finder application that offers a free-of-charge service to assist in locating unclaimed benefits on policies insuring the life of, or owned by, the deceased and accounts that are established under or as a result of such policies.

This rule requires insurers to establish procedures to respond within 30 days of the Department's notification of a request to identify coverage that the Department receives through its new Lost Policy Finder application, or within 45 days of receiving the request where an insurer contracts with another entity to maintain the insurer's records. The rule also requires an insurer to notify the beneficiary, within 30 days of the Department's notification, or within 45 days of receiving the request where the insurer contracts with another entity to maintain the insurer's records, of all items necessary to file a claim, if the insurer determines that there are benefits to be paid or other monies to be distributed.

After the initial issuance of the regulation, the Legislature in 2012 enacted Insurance Law section 3213-a, which required insurers to perform a comparison of life insurance policies against the federal death master file to identify potential matches of their insureds or account holders and to undertake a good faith effort to confirm the death of insureds and locate beneficiaries. It also authorized the Superintendent to promulgate rules and regulations to implement the statute. Although the governor signed the bill into law, he expressed a number of concerns with the legislation. A chapter amendment amended the bill, addressing those concerns. The chapter amendment also renumbered the section as section 3240. Since the original bill had a delayed effective date, it never took effect in its original form. The regulation has been amended to conform to the requirements of new section 3240 (Unclaimed benefits).

3. Needs and benefits: Many insurers had not adopted or implemented reasonable procedures and standards to investigate claims and locate beneficiaries with respect to death benefits under policies and accounts. The Department conducted an investigation into how insurers track life insurance policy holders. The Department found that many insurers had regularly been using lists of recent deaths from the Social Security Administration to promptly cease making annuity payments. However, most insurers had not been using the lists to determine whether death benefits were payable to beneficiaries.

This practice led to many abuses. For example, in some instances, a death may have occurred with no claim being filed, but premiums would continue to be deducted from the account value or cash value until the policy lapsed. In other cases, the policies or accounts may simply have remained dormant after death. In these instances, a valid death benefit was either not paid or distributed or was delayed.

While insurers were extremely diligent about terminating benefits, they were much less so in seeing that benefits were paid to beneficiaries and that monies held by them in accounts were properly distributed. Insurers must take reasonable steps to ensure that policyowners and policy beneficiaries are provided with all of the benefits for which they have paid and to which they are entitled.

To ensure that policyowners and policy beneficiaries are provided with all of the benefits for which they have paid and to which they are entitled, this Part requires insurers to implement reasonable procedures to identify unclaimed death benefits, locate beneficiaries, and make prompt payments. In addition, this Part requires insurers to respond to requests from the Superintendent to search for policies insuring the life of, or owned by, decedents and to initiate the claims process for any death benefits that are identified as a result of those requests. It also establishes a filing requirement with the Office of the Comptroller regarding unpaid benefits.

4. Costs: All insurers affected by this rule have already implemented procedures required by this rule, which was promulgated on an emergency basis on May 14, 2012, August 10, 2012, November 9, 2012, February 6, 2013, May 6, 2013, and August 2, 2013. Additionally, in response to the 308 Letter sent by the Department to insurers in July 2011, several insurers had confirmed then that they had already established, or were in the process of establishing, the standards and procedures required by this rule. Thus, insurers should incur only minimal, if any, additional costs to comply with the requirements of this rule.

As a result of the 308 Letter, to date, more than $812 million has been paid to beneficiaries nationwide, including more than $241 million paid to New York beneficiaries. Additionally, more than $338 million has been escheated or identified for escheatment. The amounts paid to beneficiaries and escheated (or identified for escheatment) now totals more than $1.1 billion.

The public benefit of ensuring that all policyowners and policy beneficiaries are provided with all of the benefits for which they have paid and to which they are entitled outweighs the minimal costs of complying with this rule.

The cost to the Department, and the Office of the Comptroller, will be minimal because existing personnel are available to verify and ensure compliance of this rule. There are no costs to any other state government agency or local government.

5. Local government mandates: The rule imposes no new programs, services, duties or responsibilities on any county, city, town, village, school district, fire district or other special district.

6. Paperwork: Section 226.5 of this rule requires every insurer to report to the Superintendent, within 30 days of receiving the Superintendent's request to search for policies and accounts, or within 45 days of receiving the request where the insurer contracts with another entity to maintain the insurer's records, the findings of that search. In addition, within 30 days of the final disposition of the request, every insurer is required to report the benefits or amounts paid, if any, as a result of the search, and any other information requested by the Superintendent. Section 226.6 of this rule requires every insurer to submit a report to the Office of the Comptroller specifying the number of policies and accounts that the insurer has identified through a death index match or notification of the death of an insured or account holder, for the prior calendar year, any outstanding monies that have not been paid or distributed by December thirty-first of such year.

7. Duplication: This rule will not duplicate any existing state or federal rule.

8. Alternatives: There are no viable alternatives to this rule. As a result of the 308 Letter, to date, more than $812 million has been paid to beneficiaries nationwide, including more than $241 million paid to New York beneficiaries. Additionally, more than $338 million has been escheated or identified for escheatment. The amount paid to beneficiaries and escheated (or identified for escheatment) now totals more than $1.1 billion - unquestionably an ongoing benefit to the public. While some insurers may have voluntarily implemented these procedures, promulgation of this rule was necessary to require all insurers to do so. This rule addresses unfair claims and trade practices by insurers in a manner that protects the public while providing minimal burdens on insurers.

After considering comments received from insurers after the 308 Letter was issued, the Department issued guidance to supplement the 308 Letter. This rule incorporates those comments.

After the regulation was first promulgated on an emergency basis, the Legislature enacted section 3213-a, now 3240 (Unclaimed benefits). The regulation is revised to the extent necessary to conform to the statute.

9. Federal standards: There are no minimum standards of the federal government for the same or similar subject areas.

10. Compliance Schedule: All insurers affected by this rule have already complied with the requirements of this rule, which was promulgated on an emergency basis on May 14, 2012, August 10, 2012, November 9, 2012, February 6, 2013, May 6, 2013, and August 2, 2013. Therefore, this rule will take effect upon filing with the Secretary of State.

Statement setting forth the basis for the finding that new 11 NYCRR 226 (Insurance Regulation 200) will impose no compliance requirements on small businesses or local governments.

1. Small Businesses: The Department of Financial Services ("Department") finds that this rule will not impose any adverse economic impact or any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at life insurers and fraternal benefit societies (collectively, "insurers") that are authorized to do business in New York State, none of which are a "small business" as defined in section 102(8) of the State Administrative Procedure Act. The Department has reviewed filed reports on examination and annual statements of these authorized insurers and believes that none of them fall within the definition of "small business," because there are none which are both independently owned and operated and have less than one hundred employees.

2. Local governments: This rule does not impose any adverse economic impact on local governments, including reporting, recordkeeping, or other compliance requirements.

Rural Area Flexibility Analysis for new 11 NYCRR 226 (Insurance Regulation 200).

1. Types and estimated numbers of rural areas: Insurers covered by this rule do business in every county in this state, including rural areas as defined under State Administrative Procedure Act Section 102(13).

2. Reporting, recordkeeping and other compliance requirements, and professional services: This rule requires authorized life insurers and fraternal benefit societies (collectively, "insurers") to establish standards for investigating claims and locating claimants under policies and accounts providing benefits in the event of the death of an insured or account holder. It also requires insurers to establish procedures to search for policies and accounts upon receipt of a death notice or the Superintendent's notification of a request to identify coverage, which was received through the Lost Policy Finder application. It requires insurers to perform, no less than quarterly, a cross-check of the death index (i.e., the U.S. Social Security Administration's Death Master File ("SSA Master File") or any other database or service that is acceptable to the Superintendent). In addition, it requires insurers to establish procedures for lost policy searches, and establishes a filing requirement with the Office of the Comptroller regarding unpaid benefits.

Section 226.5 of this rule requires every insurer to report to the Superintendent, within 30 days of receiving the Superintendent's request to search for policies and accounts, or within 45 days of receiving the request where the insurer contracts with another entity to maintain the insurer's records, the findings of that search. In addition, within 30 days of the final disposition of the request, every insurer is required to report the benefits or amounts paid, if any, as a result of the search, and any other information requested by the Superintendent. Additionally, section 226.6 of this rule requires every insurer to submit a report to the Office of the Comptroller specifying the number of policies and accounts that the insurer has identified through a death index match or notification of the death of an insured or account holder, for the prior calendar year, any outstanding monies that have not been paid or distributed by December thirty-first of such year.

3. Costs: All insurers affected by this rule have already implemented procedures required by this rule, which was promulgated on an emergency basis on May 14, 2012, August 10, 2012, November 9, 2012, February 6, 2013, May 6, 2013, and August 2, 2013. Additionally, in response to the 308 Letter sent by the Department to insurers in July 2011, several insurers had confirmed then that they had already established, or were in the process of establishing, the standards and procedures required by this rule. Thus, insurers should incur only minimal, if any, additional costs to comply with the requirements of this rule.

As a result of the 308 Letter, to date, more than $812 million has been paid to beneficiaries nationwide, including more than $241 million paid to New York beneficiaries. Additionally, more than $338 million has been escheated or identified for escheatment. The amounts paid to beneficiaries and escheated (or identified for escheatment) now totals more than $1.1 billion.

The public benefit of ensuring that all policyowners and policy beneficiaries are provided with all of the benefits for which they have paid and to which they are entitled outweighs the minimal costs of complying with this rule.

The cost to the Department, and the Office of the Comptroller, will be minimal because existing personnel are available to verify and ensure compliance with this rule. There are no costs to any other state government agency or local government.

4. Minimizing adverse impact: The public needs to know that insurers are taking reasonable steps to ensure that all policyowners and policy beneficiaries are provided with all of the benefits for which they have paid and to which they are entitled. In particular, there may be instances where a death has occurred and no claim has been filed, but premiums continue to be deducted from the account value or cash value until the policy lapses. In other instances, the policies or accounts may simply remain dormant after death. In these instances, a valid death benefit is either not paid or distributed or is delayed.

The Department sent a letter, dated July 5, 2011, to every insurer requesting the submission of a special report, pursuant to Insurance Law section 308 (the "308 Letter"). The 308 Letter required the insurer to submit a report that included a narrative summary of the SSA Master File cross-check procedures implemented by the insurer; the overall results of the SSA Master File cross-check; the current procedures utilized by the insurer to locate beneficiaries, and a seriatim listing of death benefits paid as a result of the SSA Master File cross-check. After matches were identified, each insurer was directed to provide to the Superintendent a final report updating the actions it had taken to investigate the matches to determine whether a death benefit payment was due, and to describe the procedures it had implemented to locate the beneficiaries and make payments, where appropriate. To date, over $812 million has been paid nationwide to beneficiaries, including more than $241 million that was paid to New York beneficiaries.

The 308 Letter was a one-time comparison of the SSA Master File. This rule was promulgated on an emergency basis to require insurers to continue to make the cross-checks on an ongoing basis. This rule requires insurers to continue to perform regular cross-checks using the SSA Master File, or other database or service acceptable to the Superintendent, and to request more detailed beneficiary information (e.g., social security number, address) to facilitate locating and making payments to beneficiaries.

The regulation also addresses another matter of concern. The Department regularly receives requests from family members and other potential beneficiaries requesting assistance in locating lost policies. Although certain fee-based services have been available to provide some assistance, there has not been an efficient, no-fee mechanism by which the Department could assist the public.

The Department has now developed a Lost Policy Finder application that offers a free-of-charge service to assist in locating unclaimed benefits on policies insuring the life of, or owned by, the deceased and accounts that are established under or as a result of such policies.

This rule requires insurers to establish procedures to respond within 30 days of the Department's notification of a request to identify coverage that the Department received through its new Lost Policy Finder application, or within 45 days of receiving the request where an insurer contracts with another entity to maintain the insurer's records. The rule also requires the insurer to notify the beneficiary, within 30 days of the Department's notification, or within 45 days of receiving the request where the insurer contracts with another entity to maintain the insurer's records, of all items necessary to file a claim, if the insurer determines that there are benefits to be paid or other monies to be distributed.

The rule thus ensures that insurers will continue to make death index cross-check efforts so that policyowners and policy beneficiaries will be provided with all of the benefits for which they have paid and to which they are entitled. This rule will result in the rightful payment of millions of dollars of additional benefits to beneficiaries. Therefore, it is necessary for all insurers to comply with the requirements of this rule.

5. Rural area participation: The Department received comments from insurers, including those doing business in rural areas of the State, regarding the 308 Letter. Those comments have been incorporated into this rule.

Statement setting forth the basis for the finding that new 11 NYCRR 226 (Insurance Regulation 200) will not have a substantial adverse impact on jobs and employment opportunities.

The Department of Financial Services finds that this rule will have little or no impact on jobs and employment opportunities. This rule requires insurers to establish standards for investigating claims and locating claimants under policies and accounts providing benefits in the event of an individual's death. It also requires insurers to set up procedures for lost policy searches, and establishes a filing requirement with the Office of the Comptroller regarding unpaid benefits.

The Department believes that this rule will not have any adverse impact on jobs or employment opportunities, including self-employment opportunities.