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For many years, LICONY has developed with and had endorsed by its members an annual, affirmative legislative program. That program is a compilation of the bills that LICONY members consider a priority for enactment during the upcoming legislative session. The number in the program usually fluctuates between five and ten initiatives, one or two of which might generally pass during a typical legislative session. Sometimes, it can take several years of work and planning before these bills are successful in becoming law and sometimes bills are retired from our Program without having been achieved. Observant readers will also note that a common theme of LICONY’s affirmative, legislative program is the enactment of National Association of Insurance Commissioners (NAIC) Model Acts in this state. Uniformity of state insurance regulation is of primary importance to insurers, particularly life insurers, which must compete with other entities that do not have to deal with fifty-state insurance regulation. In 2011, the number one priority on the list of LICONY affirmative legislative proposals is one which has been part of its Program for the past several years, a bill that would create a new Article 88 of the insurance law to establish that New York will become a part of the Interstate Insurance Product Regulation Compact (IIPRC). To date, 36 jurisdictions have joined IIPRC and the Compact Commission is now operational and availCommission operates a streamlined system of product form filing that allows insurers to have a single point of filing for approval of insurance policy forms. Insurers which gain approval by the Compact Commission for a product form will be provided access to the markets of the states that have joined the Compact.

Life insurers offer a wide range of products, including many that are primarily used for investment purposes. These long-term, investment-oriented insurance products compete directly with other retirement and estate planning instruments that are sold by banks and securities firms. While insurers must currently seek approval of their products on a state-by-state basis, banks and securities firms can make use of a more streamlined product approval process. As a result, there is an unlevel playing field for insurers in the financial products marketplace. States that enact the Compact appoint a member to the Interstate Insurance Product Regulation Commission, which has and is continuing to develop standards for the review of life insurance products. States with large premium volume, such as New York, would also become part of the Management Committee of the Commission. Additionally, the system and this bill establish that a state may opt out of allowing insurers in their state to file a product, which they might not fully endorse with the Commission.

The ability to obtain approval from a single source for the sale of products in multiple states will give insurers a more efficient regulatory option than the current multi-state system. New York consumers would also benefit from this legislation, were it to be enacted, as insurers will be able to get their products to market more quickly and in a more cost-effective manner. That will mean more choices and, potentially, less costly products for consumers. Lastly, efforts such as this initiative will assist in preserving the state insurance regulatory system at a time when legislative efforts to Federalize the system are proliferating. Another bill on LICONY’s 2011 affirmative agenda would establish the NAIC Insurance Receivership Model Act (IRMA) in New York. This NAIC Model was adopted by that organization in December of 2005 to replace the Insurers Rehabilitation and Liquidation Model Act. As part of the NAIC’s modernization efforts, IRMA is intended to comprehensively address the administration of an impaired or insolvent insurer from conservation and rehabilitation to the liquidation and winding up of a receivership estate. Approximately ten states have enacted the new IRMA since 2005, including four enactments, Illinois, Massachusetts, Minnesota & Missouri, in 2010 alone.

If this bill were enacted, it would increase the certainty of insurers and their creditors with respect to the enforceability of certain financial market transactions (“qualified financial contracts”) and related netting agreements in the event of insurer insolvency. By providing for the enforcement of netting and closeout rights for qualified financial contracts in an insurer insolvency, New York will bring its insurer insolvency law into harmony with the federal bankruptcy code, as well as the New York banking law, and will give both insurers and their creditors the certainty and safety they need to continue to transact business. Without the certainty sought by this bill, it will become more difficult for the counterparties of New York insurers to gain the legal comfort necessary for the transaction of business with New York insurers. The consequence for domestic insurers will be increasingly poor pricing for their transactions and, potentially, lack of equal access to these financial markets. An inability to continue to trade or a deterioration of the prices at which insurers can transact business can have a significant adverse impact on the competitiveness and financial strength of New York insurance companies. LICONY also has two bills on their 2011 legislative agenda that seek to make the long term care insurance market more attractive in New York. One of those bills would amend the New York tax code to adjust the credit available to individuals who purchase long term care insurance in New York.

Over the past decade, it has been shown that fewer and fewer individuals are purchasing long term care insurance policies each year. Recent studies conducted by the New York State Insurance Department have indicated that, on average, 20,000 long-term care insurance policies were sold annually from 2001-2004 compared to nearly 12,500 annually from 2005-2008. As a result of this decrease in the purchase of private longterm care insurance, more individuals are relying on Medicaid to pay for their longterm care service needs. In 2006, New York State spent approximately $19 billion on long-term care, according to a study conducted by the Rockefeller Institute of Government.

The current state tax credit for individuals who purchase long term care insurance is 20% of premium for the life of the contract. While the current credit is some incentive for individuals to purchase long term care insurance, LICONY’s proposal would seek to significantly increase the first year credit, so as to further incentivize more people to purchase coverage, particularly at younger issue ages when it is less expensive. The LICONY proposal would seek to frontload that credit, so that individuals would receive a very generous credit worth 75% of premiums for year one of a long-term care insurance contract. That credit would be reduced to 50% of premium for year two of the contract and 25% of premium for year three. The credit would be eliminated after the conclusion of the third year of the long-term care contract.

Historically, individuals who purchase long-term care insurance and keep it for three years are less likely to lapse or cancel the policy. Given that, we believe that a much larger credit covering the first few years of the policy term might incentivize more people to purchase coverage and that those same individuals would not be likely to lapse the policy after the credit has been phased out. Additionally, by eliminating the credit after three years, the state should, over time, save money because there would be fewer individuals earning an unending tax credit and, hopefully, more people would be covered by long-term care insurance. The second long-term care bill on LICONY’s agenda for this year would amend the social service and insurance laws to permit policyholders of the New York State Partnership for Long-Term Care Program to be eligible for Medicaid asset protection, regardless of their state of residence when they apply for long-term care Medicaid assistance. The New York State Partnership for Long-Term Care is a program that allows New Yorkers to protect some or all of their assets, depending on the partnership insurance plan purchased, if their long-term care needs extend beyond the period covered by their private Partnership insurance policy. If an individual buys NYS Partnership for Long-Term Care insurance from a participating insurer and uses the benefits according to the conditions of the program, that individual can apply for New York State Medicaid extended coverage, which may assist in paying for ongoing care. However, under current law, an individual with such a policy can apply and remain eligible for Medicaid extended coverage only as long as the individual does so in New York.

New York, along with Connecticut, Indiana and California, were original participants in the LTC Partnership program supported by the Robert Wood Johnson Foundation. The Partnership Program was expanded under the Federal Deficit Reduction Act of 2005, enabling other states to set up LTC Partnership programs. Those new Partnership programs now permit policyholder reciprocity, which means that they may apply for Medicaid in any of the reciprocal Partnership states and receive the same Medicaid asset protection benefits as they would have in their home state.

If this legislation were enacted, a New York resident who purchases a Partnership policy and then later moves to Florida may use that policy in a Florida nursing home and he or she could then seek asset-protection benefits from the Florida Medicaid Program. The same would be true for Florida Partnership policyholders who relocate to New York and then apply for Medicaid in New York. Having this benefit would make this product more attractive to the insurance consumer.

LICONY will also have two new proposals as part of its 2011 affirmative legislative agenda. The first new proposal would amend Article 71 of the insurance law to authorize the transfer from this state of the corporate domicile of a domestic insurance company. If this proposal were enacted, New York’s law would be fully consistent with the NAIC Redomestication Model Law. Current law in New York only contains the provisions of that Model that allow foreign companies to redomesticate into New York (i.e., you can check in but you can’t check out). The second new proposal seeks to amend §3203 of the insurance law to permit indexed life insurance products to credit additional amounts no less frequently than every five years. Current law requires that all policies crediting additional amounts must credit them not less frequently than annually. This current law requirement places limitations on product design for, particularly, indexed universal life insurance and has lead to a less robust market for these types of products in this state. On the defensive side, LICONY will continue to be watchful for any further attempts to shift NYS General Fund spending to the Insurance Department budget. The group will also continue to urge policymakers to roll back a substantial portion of the recent astonishing increases in the Insurance Department budget that are unrelated to the ongoing operation of the Department. By transferring these unrelated programs to the Insurance Department budget, the state is effectively transferring costs onto the backs of the domestic insurers of this state, which fund the Insurance Department budget pursuant to §332 of the Insurance Law. Section 332 was created for the purpose of assessing domestic insurers for the operating expenses attributed to the regulation of that industry by the Insurance Department. It was not intended to provide funding for general fund obligations of the state that are wholly unrelated to the business or regulation of life insurance. Many of these programs are merely “funded” through the Insurance Department budget, but are actually administered by other state agencies, such as the Departments of Health and State or the Attorney General’s Office. This budget gimmick has proliferated over the past decade, and has become acutely unfair in the past two years. This maneuver is nothing more than a back-door tax on insurers and their policyholders-who will see these assessments passed along into their rates for most types of policies-and has nothing whatsoever to do with the operating expenses of the Insurance Department.

For instance, the total Insurance Department budget funded by §332 assessments for FY 2009-10 was approximately $455 million. Of that total amount, approximately 30% was used to actually fund the budget of the Insurance Department and that funding actually decreased slightly from the 2008-09 Insurance Department budget. The remaining 70% of the funding to the Insurance Department was attributable to programs that were previously funded by the state’s General Fund, most of which are not even administered by the Insurance Department, but instead by other state agencies. The Insurance Department budget has increased by an astounding 371% over the past decade, from FY 2000- 01 to FY 2009-10. In the past 2 years alone, the budget has increased by approximately 118% (FY 2007-08 to FY 2009-10).

LICONY will strongly object to any attempts to further increase the Insurance Department budget for purposes unrelated to the operation of the Department and, in fact, will urge policymakers to review the list of programs transferred to the Insurance Department budget in this past budget cycle to determine which of them to eliminate or have their funding reduced or transferred back to the state agency that actually administers them. By doing this, the legislature will reduce the extraordinarily large burden placed on insurers based here in New York State during the past two fiscal years. This will begin the process of ameliorating some of the harm that was done.

If this is not accomplished, the domestic insurance industry will continue to bear this increased assessment burden on an annual basis-something that is not fair and that is harmful to the companies and their policyholders. Not taking this action could result in some domestic insurers reassessing the cost of doing business in this state.