The Top 5 Government Moves of 2009: A Look Back
January 5, 2010 by Heather Trese
A new president in the White House. A more liberal Congress. A collapsing economy. Last year, our country saw them all, and the government made some big moves in order to address the changes that our nation witnessed.
Now, ASJ is taking a look at the most important of those regulatory decisions to see how they affected agents, and if any consequences linger on. Whether they passed, were defeated, or are still being considered, here are the five biggest regulatory moves that the government made — or almost made — in 2009.
The five events we listed here weren’t the only important legislative actions from 2009. See our special list of even more bills and regulations from the last year — and what they mean for your business — at www.ASJonline.com/2009reform
1. SEC’s Rule 151A
What happened: On Jan. 16, 2009, the Securities and Exchange Commission (SEC) published its controversial Rule 151A, which classifies certain indexed annuities as securities. It didn’t take long for the industry to mobilize and file a lawsuit against the SEC, claiming that the rule goes against Congress’ original intent and two Supreme Court decisions. Then, in late July 2009, a U.S. court ordered the SEC to reconsider Rule 151A, citing the commission’s failure to analyze the impact of the bill. Meanwhile, the Meeks-Price legislation seeks to exempt certain annuity contracts and insurance products from SEC oversight. In early December, the SEC agreed to delay 151A implementation for two years after the final rule is issued, and offered to open a public comment period on the impact analysis.
It’s still unclear what could happen next. Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), said although industry representatives have met with the SEC on several occasions, “The meetings did not give any indication as to how the SEC might decide. In each meeting, the SEC said they are still looking at their options.”
How it affected you: So if this whole process started a year ago, and it may not be resolved for still another year, why should you care right now?
“This rule is not just going to have a negative impact on the product,” O’Brien said. “The product will not be around if the rule prevails. … But more importantly, this is about protecting independent distribution. This rule is saying that you can no longer sell certain products with an insurance license alone. It’s saying you must be dually licensed on the insurance side, and this will reach beyond the indexed annuity.”
To illustrate her point, O’Brien cited a 2008 comment letter by AARP in which the group stated its support for Rule 151A but conceded that it was concerned that the rule needed to be modified so that other products would not be affected.
“So even our competitors and the people that disagree with us see that this could eventually impact more than indexed annuities,” O’Brien said.
For now, O’Brien said she thinks that agents should just continue doing what they do best — selling the secured annuity products while they can.
“Don’t make any decisions on your business model based on what you think may or may not happen,” she said. “Make decisions based on your customers and what’s best for them. Don’t get pulled into anything because of uncertainty.”
2. Obama’s health care reform
What happened: From the moment he announced his candidacy, President Obama has made it clear that reforming the health care system is his top domestic priority. But we’ve heard that line before: Presidents Clinton, Carter, and Truman, as well as both Presidents Franklin Delano Roosevelt and Theodore Roosevelt, all discussed a universal health plan of some kind. So will this time be any different? Russ Childers, president of the National Association of Health Underwriters (NAHU), thinks so.
“This effort is definitely stronger than others,” Childers said. “President Obama campaigned on the idea that the health system needed reform, and therefore his election is looked on by his party as a mandate for change in that area, so they’re a little more united than they have been in previous years.”
He added, however, that the high costs of the reform combined with the economic slowdown have made some of the more conservative members of the Democratic Party reluctant to accept such changes. As a result, we’ll likely end up with a plan much different than what Obama originally intended. Economic challenges have also managed to slow down the reform effort.
“Without some of the economic problems we’ve had, I think you would have seen an even quicker move toward reform, and it might have been more bipartisan,” Childers said.
How it affected you: According to Childers, only time will tell just how big of an effect any type of health reform will have on agents.
“It really depends on what the result is,” he said. “If the result is guaranteed issue with no pre-existing condition clauses in an environment without individual mandates, etc., it would cause premiums to rise dramatically. That could substantially reduce the market for health insurance because people wouldn’t be able to afford it.”
Still, Childers remains optimistic.
“I think we’ll be able to find ways to make it work,” he said. “I don’t think the insurance industry is in terrible shape. But just because we’re not in terrible shape right now doesn’t mean that the wrong kind of reform couldn’t put us in terrible shape.”
3. Life insurance taxes
What happened: In order to raise money for health care reform, Obama suggested taxing life insurance policies. This move would have returned an estimated $8.5 billion in revenue, but thanks largely to outreach and awareness campaigns conducted by prominent industry organizations and outspoken agents, the idea was defeated.
Jack Dolan, vice president of media relations for the American Council of Life Insurers (ACLI), said industry groups played a large part in helping Congress realize that there were other, more profitable ways to raise revenue for proposed health care reform.
However, that doesn’t mean that the idea is completely off the table.
“This is an era of revenue-hungry members of Congress; it’s a revenue-hungry administration looking to pay for the programs they’re aiming to adopt,” Dolan said. “So we’re always on the lookout. There’s always a possibility that something could surface in 2010 or 2011.”
How it affected you: As Dolan noted, the life insurance tax is gone — but maybe only for now. It might resurface this year or the next, so agents should stay informed in order to provide frequent updates to clients.
The failure of the life insurance tax, however, is considered one of the bigger triumphs of the insurance industry in 2009. It shows that, with a bit of hard work and lobbying, the industry can be heard.
“Certainly the agent community, the company community, worked hand in hand to get to the Hill and point out that taxing life insurance in any time — but certainly right now — is a bad idea,” Dolan said. “Both the companies and the agents helped make sure that they didn’t get too far.”
4. Life settlement regulation by individual states
What happened: Over the past year, several states — including California, Illinois, and New York — have taken steps to regulate life settlement transactions. In doing so, most of the states are following the NCOIL model, as opposed to the NAIC model, for regulation.
Although the NCOIL Life Settlements Model Act and the NAIC Viatical Settlements Model Act both aim to put an end to stranger-oriented life insurance (STOLI), there are some notable differences between the acts. For example, NCOIL defines STOLI specifically and separately from traditional life settlements, while the NAIC act does not include a definition.
Another difference between the two models is the length of time a policyholder must wait between buying a life insurance policy and selling it on the secondary market; the NCOIL Model Act has a two-year moratorium on settlements, whereas NAIC’s model mandates a five-year moratorium.
Doug Head, executive director of the Life Insurance Settlement Association (LISA), said, “There are relatively few states that don’t regulate [life settlements] in some way, but I think a consensus is emerging that the NCOIL model is the right approach.”
Moving forward, Head said, there likely won’t be any federal action in the life settlement arena, as the Consumer Protection Act has already agreed to not include insurance (which life settlements are still considered to be) in any proposed federal oversight.
How it affected you: Whether or not you’re involved in the life settlement market, you need to be prepared to talk about the transactions thanks to changes in the law, Head said, as the amount of legislative attention given to life settlements has led to increased curiosity among consumers.
Agents are “going to get more and more questions about it from their clients,” he said, “and they ought to be prepared for those questions. The huge volume of media coverage we’ve had in the past few months … has dramatically increased consumer awareness.”
If you’re not currently involved in life settlements, but you do sell life insurance, Head suggested that you get to know the settlement industry — and fast.
“Any life insurance agent who doesn’t understand what a settlement is about is not really explaining the policy that he’s selling,” he said. “I think it’s the responsibility of agents to explain the contract of insurance when they sell it, and one of the provisions that exists in most contracts is the right of assignability. So it’s something that you have to be aware of.”
Agents who have clients with a life settlement in place will want to pay attention to what’s going on. It’s possible that some states might make existing policies subject to new policy laws, Head said.
“My view is that it’s unconstitutional to constrain a policy right that existed after the fact, but the courts have had different views on this issue,” he said.
5. The economic stimulus bill
What happened: When the American Recovery and Reinvestment Act of 2009 was passed in February 2009, many Americans and policymakers hoped it would be just the jump start the economy needed to turn itself around. Those in the financial industry, however, were concerned with how it would affect their business.
Fortunately, the insurance industry was mostly left alone. The Act included federal tax cuts; expansion of unemployment benefits and other social welfare provisions; and domestic spending in education, infrastructure, and — of course — health care.
But even the health care-related funding didn’t directly affect agents or clients. Out of more than $147 billion designated for health care-related programs, the only change that really affected agents was $25 billion used to subsidize COBRA benefits for individuals who lost their jobs. Under the subsidies, eligible individuals paid just 35 percent of their COBRA premiums, with the remaining 65 percent paid by the coverage provider and reimbursed through a tax credit. This assistance came with significant changes to COBRA rules that agents needed to know as many of them watched their clients were laid off.
How it affected you: Childers said that the biggest problem caused by the stimulus package was the turmoil it created in the industry. The legislation passed very early in the year, and was also extremely close to the effective date of the legislation, giving carriers little time to decide how they would treat the late entrants to COBRA. As a result, agents were fielding calls from clients who weren’t sure what they were going to do.
“After that,” Childers said, “there was a bit of administrative burden because you had to make sure that everyone had the correct paperwork.”
Even after the administrative burdens, there was work to be done, as workers continued to experience layoffs.
“Agents in general did a good job of reacting quickly to the law and making those benefits available,” Childers said. “And I think insurance companies did an excellent job of adjusting their systems.”
Childers said he was proud of how the industry handled the situation, and knows that could be an indicator of how the insurance market would respond in the future.
“It was hard to react in a short period of time,” he said. “We always prefer more time, but I’m sure the government would have wanted more time to react to the economic situation, too, and sometimes you just can’t do that.”
Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at HTrese@AgentMedia.com or 800-933-9449 ext. 225.
A new president in the White House. A more liberal Congress. A collapsing economy. Last year, our country saw them all, and the government made some big moves in order to address the changes that our nation witnessed.
Now, ASJ is taking a look at the most important of those regulatory decisions to see how they affected agents, and if any consequences linger on. Whether they passed, were defeated, or are still being considered, here are the five biggest regulatory moves that the government made — or almost made — in 2009.
The five events we listed here weren’t the only important legislative actions from 2009. See our special list of even more bills and regulations from the last year — and what they mean for your business — at www.ASJonline.com/2009reform
1. SEC’s Rule 151A
What happened: On Jan. 16, 2009, the Securities and Exchange Commission (SEC) published its controversial Rule 151A, which classifies certain indexed annuities as securities. It didn’t take long for the industry to mobilize and file a lawsuit against the SEC, claiming that the rule goes against Congress’ original intent and two Supreme Court decisions. Then, in late July 2009, a U.S. court ordered the SEC to reconsider Rule 151A, citing the commission’s failure to analyze the impact of the bill. Meanwhile, the Meeks-Price legislation seeks to exempt certain annuity contracts and insurance products from SEC oversight. In early December, the SEC agreed to delay 151A implementation for two years after the final rule is issued, and offered to open a public comment period on the impact analysis.
It’s still unclear what could happen next. Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), said although industry representatives have met with the SEC on several occasions, “The meetings did not give any indication as to how the SEC might decide. In each meeting, the SEC said they are still looking at their options.”
How it affected you: So if this whole process started a year ago, and it may not be resolved for still another year, why should you care right now?
“This rule is not just going to have a negative impact on the product,” O’Brien said. “The product will not be around if the rule prevails. … But more importantly, this is about protecting independent distribution. This rule is saying that you can no longer sell certain products with an insurance license alone. It’s saying you must be dually licensed on the insurance side, and this will reach beyond the indexed annuity.”
To illustrate her point, O’Brien cited a 2008 comment letter by AARP in which the group stated its support for Rule 151A but conceded that it was concerned that the rule needed to be modified so that other products would not be affected.
“So even our competitors and the people that disagree with us see that this could eventually impact more than indexed annuities,” O’Brien said.
For now, O’Brien said she thinks that agents should just continue doing what they do best — selling the secured annuity products while they can.
“Don’t make any decisions on your business model based on what you think may or may not happen,” she said. “Make decisions based on your customers and what’s best for them. Don’t get pulled into anything because of uncertainty.”
2. Obama’s health care reform
What happened: From the moment he announced his candidacy, President Obama has made it clear that reforming the health care system is his top domestic priority. But we’ve heard that line before: Presidents Clinton, Carter, and Truman, as well as both Presidents Franklin Delano Roosevelt and Theodore Roosevelt, all discussed a universal health plan of some kind. So will this time be any different? Russ Childers, president of the National Association of Health Underwriters (NAHU), thinks so.
“This effort is definitely stronger than others,” Childers said. “President Obama campaigned on the idea that the health system needed reform, and therefore his election is looked on by his party as a mandate for change in that area, so they’re a little more united than they have been in previous years.”
He added, however, that the high costs of the reform combined with the economic slowdown have made some of the more conservative members of the Democratic Party reluctant to accept such changes. As a result, we’ll likely end up with a plan much different than what Obama originally intended. Economic challenges have also managed to slow down the reform effort.
“Without some of the economic problems we’ve had, I think you would have seen an even quicker move toward reform, and it might have been more bipartisan,” Childers said.
How it affected you: According to Childers, only time will tell just how big of an effect any type of health reform will have on agents.
“It really depends on what the result is,” he said. “If the result is guaranteed issue with no pre-existing condition clauses in an environment without individual mandates, etc., it would cause premiums to rise dramatically. That could substantially reduce the market for health insurance because people wouldn’t be able to afford it.”
Still, Childers remains optimistic.
“I think we’ll be able to find ways to make it work,” he said. “I don’t think the insurance industry is in terrible shape. But just because we’re not in terrible shape right now doesn’t mean that the wrong kind of reform couldn’t put us in terrible shape.”
3. Life insurance taxes
What happened: In order to raise money for health care reform, Obama suggested taxing life insurance policies. This move would have returned an estimated $8.5 billion in revenue, but thanks largely to outreach and awareness campaigns conducted by prominent industry organizations and outspoken agents, the idea was defeated.
Jack Dolan, vice president of media relations for the American Council of Life Insurers (ACLI), said industry groups played a large part in helping Congress realize that there were other, more profitable ways to raise revenue for proposed health care reform.
However, that doesn’t mean that the idea is completely off the table.
“This is an era of revenue-hungry members of Congress; it’s a revenue-hungry administration looking to pay for the programs they’re aiming to adopt,” Dolan said. “So we’re always on the lookout. There’s always a possibility that something could surface in 2010 or 2011.”
How it affected you: As Dolan noted, the life insurance tax is gone — but maybe only for now. It might resurface this year or the next, so agents should stay informed in order to provide frequent updates to clients.
The failure of the life insurance tax, however, is considered one of the bigger triumphs of the insurance industry in 2009. It shows that, with a bit of hard work and lobbying, the industry can be heard.
“Certainly the agent community, the company community, worked hand in hand to get to the Hill and point out that taxing life insurance in any time — but certainly right now — is a bad idea,” Dolan said. “Both the companies and the agents helped make sure that they didn’t get too far.”
4. Life settlement regulation by individual states
What happened: Over the past year, several states — including California, Illinois, and New York — have taken steps to regulate life settlement transactions. In doing so, most of the states are following the NCOIL model, as opposed to the NAIC model, for regulation.
Although the NCOIL Life Settlements Model Act and the NAIC Viatical Settlements Model Act both aim to put an end to stranger-oriented life insurance (STOLI), there are some notable differences between the acts. For example, NCOIL defines STOLI specifically and separately from traditional life settlements, while the NAIC act does not include a definition.
Another difference between the two models is the length of time a policyholder must wait between buying a life insurance policy and selling it on the secondary market; the NCOIL Model Act has a two-year moratorium on settlements, whereas NAIC’s model mandates a five-year moratorium.
Doug Head, executive director of the Life Insurance Settlement Association (LISA), said, “There are relatively few states that don’t regulate [life settlements] in some way, but I think a consensus is emerging that the NCOIL model is the right approach.”
Moving forward, Head said, there likely won’t be any federal action in the life settlement arena, as the Consumer Protection Act has already agreed to not include insurance (which life settlements are still considered to be) in any proposed federal oversight.
How it affected you: Whether or not you’re involved in the life settlement market, you need to be prepared to talk about the transactions thanks to changes in the law, Head said, as the amount of legislative attention given to life settlements has led to increased curiosity among consumers.
Agents are “going to get more and more questions about it from their clients,” he said, “and they ought to be prepared for those questions. The huge volume of media coverage we’ve had in the past few months … has dramatically increased consumer awareness.”
If you’re not currently involved in life settlements, but you do sell life insurance, Head suggested that you get to know the settlement industry — and fast.
“Any life insurance agent who doesn’t understand what a settlement is about is not really explaining the policy that he’s selling,” he said. “I think it’s the responsibility of agents to explain the contract of insurance when they sell it, and one of the provisions that exists in most contracts is the right of assignability. So it’s something that you have to be aware of.”
Agents who have clients with a life settlement in place will want to pay attention to what’s going on. It’s possible that some states might make existing policies subject to new policy laws, Head said.
“My view is that it’s unconstitutional to constrain a policy right that existed after the fact, but the courts have had different views on this issue,” he said.
5. The economic stimulus bill
What happened: When the American Recovery and Reinvestment Act of 2009 was passed in February 2009, many Americans and policymakers hoped it would be just the jump start the economy needed to turn itself around. Those in the financial industry, however, were concerned with how it would affect their business.
Fortunately, the insurance industry was mostly left alone. The Act included federal tax cuts; expansion of unemployment benefits and other social welfare provisions; and domestic spending in education, infrastructure, and — of course — health care.
But even the health care-related funding didn’t directly affect agents or clients. Out of more than $147 billion designated for health care-related programs, the only change that really affected agents was $25 billion used to subsidize COBRA benefits for individuals who lost their jobs. Under the subsidies, eligible individuals paid just 35 percent of their COBRA premiums, with the remaining 65 percent paid by the coverage provider and reimbursed through a tax credit. This assistance came with significant changes to COBRA rules that agents needed to know as many of them watched their clients were laid off.
How it affected you: Childers said that the biggest problem caused by the stimulus package was the turmoil it created in the industry. The legislation passed very early in the year, and was also extremely close to the effective date of the legislation, giving carriers little time to decide how they would treat the late entrants to COBRA. As a result, agents were fielding calls from clients who weren’t sure what they were going to do.
“After that,” Childers said, “there was a bit of administrative burden because you had to make sure that everyone had the correct paperwork.”
Even after the administrative burdens, there was work to be done, as workers continued to experience layoffs.
“Agents in general did a good job of reacting quickly to the law and making those benefits available,” Childers said. “And I think insurance companies did an excellent job of adjusting their systems.”
Childers said he was proud of how the industry handled the situation, and knows that could be an indicator of how the insurance market would respond in the future.
“It was hard to react in a short period of time,” he said. “We always prefer more time, but I’m sure the government would have wanted more time to react to the economic situation, too, and sometimes you just can’t do that.”
Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at HTrese@AgentMedia.com or 800-933-9449 ext. 225.
