Session Overview

1. Session Overview • General Principles of Interstate Compact Law • Origins of Insurance Compact • Structure of Insurance Compact and Uniform Standards • Interrelationship of the Uniform Standards and State Law • Market Regulation or Litigation Considerations

2. Principles of Interstate Compacts • Legal frameworks for cooperative solutions to issues that transcend state borders • Statutory—requires legislative enactment • Contractual—creates binding agreement between enacting states

3. Principles of Interstate Compacts • Compacts have standing as both binding state law and a contract between the members such that one state cannot unilaterally act in conflict with the terms • The terms of the compact take precedence over conflicting state law including subsequent state law

4. The IIPRC Today

5. Origins of Insurance Compact • Stated needs for modernization • Coordinated advertising and rate form review authority • Precursor to Insurance Compact • Did not work as needed state law changes • Interstate Insurance Product Regulation Compact • Legal vehicle formalizing joint state action • Collaborative development effort

6. Origins of Insurance Compact • Compact created in March 2004 when legislation adopted by Colorado and Utah • By terms of Compact, Commission became operational in May 2006 when • Reached 27 states and • States with 40% of premium volume • Adopted first set of Uniform Standards in 12/2006 • Approved first product filing in July 2007

7. Principles of Insurance Compact Congressional consent is only required if compact tends to increase the political power of the states in relation to the federal government. Virginia v. Tennessee, 148 U.S. 503 (1893)

8. Principles of Insurance Compact • Delegation of authority can extend to a multi-state agency created by an interstate compact. West Virginia ex re. Dyer v. Sims, 341 U.S. 22, 30-31 (1951) • Courts apply intelligible principle standard • Has legislature articulated • a complete and definite declaration of policy • established objective standards or guidelines

9. Principles of Insurance Compact • Each compacting state is entitled to one vote • Two-thirds (2/3) of the compacting states must vote in favor of Uniform Standard • Advanced written notice to state insurance legislative committees • Ability to opt-out of Uniform Standard at any time by legislation and by regulation (w/in 10 days) • Right to withdraw from the Compact at any time

10. Principles of Insurance Compact • Uniform Standards, Rules, and Operating Procedures have the force and effect of law and are binding in the Compacting States (Art. IV) • Approvals (products, rates, advertisements) by the Commission have the force and effect of law and are binding in the Compacting States (Art. IV) • Any Product approved by the Commission may be sold or otherwise issued in those Compacting States for which the Insurer is legally authorized to do business (Art. X)

11. Principles of Insurance Compact • For any Product approved, the Rules, Uniform Standards and any other requirements of the Commission constitute the exclusive provisions applicable to the content of such Products (Art. XVI) • States maintain sovereign rights to enact and withdraw from Compact and opt-out (by legislation or regulation) of one or more Uniform Standards (Art. VII) • All lawful actions of the Commission, including all Rules and Operating Procedures promulgated by the Commission, are binding upon the Compacting States (Art. XVI)

12. Structure of Insurance Compact • One member from each compacting state • Commission is a joint public entity • Governance: Compact law, Bylaws, Uniform Standards, Rules and Operating Procedures • Authority to receive, review, approve or disapprove product filings

13. Uniform Standards • 101 Uniform Standards adopted to date • Individual Life • Individual Annuities • Individual Long-Term Care • Individual Disability Income and Business Overhead Expense • Employer/Employee Group Term Life • Employer/Employee Group Disability Income • Wide variety of benefit features and combination products

14. Uniform Standards • Product Standards Committee recommends to Management Committee • Public comment period and hearing • Notice to state legislative committees • Supermajority requirement (2/3 of Management Committee and 2/3 of Commission) • Rulemaking docket and record on website • Standard effective 90 days after promulgation • Published on IIPRC website—Record

15. Uniform Standards • Uniform Standards apply as Compacting States law for Compact-approved products • State product content requirements (state laws, regulations, bulletins, desk drawer rules) do not apply to Compact-approved products • States have right to opt-out of Uniform Standard by legislation or regulation per terms of Compact

16. Example: Fraud Notice on Application • Form content requirement – YES • Uniform Standard: The application shall include a fraud notice…“Any person who knowingly presents a false statement in an application for insurance may be guilty of a criminal offense and subject to penalties under state law.” • Several state laws prescribe fraud notices on application forms – not applicable to Compact-approved applications

17. Example: Suicide Exclusion Period • Form content requirement – YES • Uniform Standard: “The suicide exclusion period shall not exceed two years from the date of issue of the policy” • A small number of states have laws limiting the suicide exclusion period to one year – not applicable to Compact-approved policies

18. Market Regulation • State suitability and underwriting laws are generally applicable as outside content of product • Unfair trade/claims practice state laws (other than product content requirements) generally still apply to sale and administration of Compact-approved products

19. Market Regulation • LTC Model for suitability forms exempts LTC riders • Some Compacting States did not adopt exemption though cannot require the suitability forms to be filed or used with Compact-approved product • However, Compacting States that did not adopt the suitability exemption can still expect companies to conduct suitability process and reporting

20. Market Regulation • State law provides that cannot include in a written application a question whether any insurer has cancelled or refused to renew or issue insurance to the applicant and cannot refuse to insure solely because another insurer has refused to issue a policy or cancelled or refused to renew (Missouri R.S.Mo. 375.936.1(11)(f)) • Individual Life Insurance Application Uniform Standards -- the application may include a question regarding if any proposed insured has ever had life or health insurance declined, modified, or rated

21. Market Regulation • NAIC Market Regulation Handbook has extensive discussion of the Compact including the applicability of the Uniform Standards and reviewer approach to Compact-approved products • Through enactment of the Compact, compacting states agree that the uniform standards apply as their state law to the content requirements of products filed and approved through the IIPRC. Ch. 1.H (Vol. 1 pg. 8)

22. Disputes Involving Compact-Approved Products • Be attentive to issues related to applicability of state law to Compact-approved products when involved threatened or pending litigation • Wetzig v. Texas Life Ins. Co., No. 1316-CV22323 (16th Cir. Mo., filed Sept. 24, 2013) • IIPRC Office provided factual affidavit • New York Life v. Ortiz et al, C.A. NO. S 14-074/S (U.S. District Court for the District of Rhode Island, filed February 7, 2014) • IIPRC Office provided factual affidavit • NAIC filed amicus brief: http://www.naic.org/legal_home.htm

23. Disputes Involving Compact-Approved Products • Compact-approved product or claim under policy involves state law v. Compact Uniform Standards • Council of State Governments National Center for Interstate Compacts is useful resource for materials on the law of interstate compacts including case law • Useful reference guide The Evolving Use and the Changing Role of Interstate Compacts: A Practitioner’s Guide, Caroline N. Broun et al. (2006)

24. IIPRC Industry Resources

25. IIPRC and IDOI Contacts • IIPRC • Comments@insurancecompact.org • www.insurancecompact.org • 202-471-3962 • IDOI • Abeard@idoi.in.gov • 317-234-6476