New life insurance rules may have dramatic impact on industry

New Life insurance RulesTop regulator warns of potential impact of new life insurance rules

The New York Department of Financial Services has issued concerns regarding emerging rules that may affect the nation’s life insurance industry. Benjamin Lawsky, Superintendent of the agency, released a five-page letter to state insurance commissioners throughout the U.S. warning them that new rules for the life insurance sector could severely impact claims reserves and lead to insolvencies. These rules are summed up in “principles-based reserving,” a concept that has already become somewhat popular amongst states with flagging life insurance sectors.

Principles-based reserving could be dangerous

Through principles-based reserving, life insurance companies would be able to move away from a system that is heavily formulated in favor of one that is more straightforward, thanks to the use of computer modeling. The formulas of the current system are designed to take into account a vast multitude of factors that could affect the life insurance industry and the risk companies are exposed to. These factors help companies determine what their reserves should be, which in turn determine whether claims can be paid or not.

Insurance officials preparing to vote on the measure

The National Association of Insurance Commissioners is currently poised to vote on the measure. If approved, state regulators will begin working to incorporate principles-based reserving into the regulatory structure of each state. Lawsky has petitioned insurance officials to reconsider their position on the measure, warning that the measure will lead to lower reserves for insurance companies and dramatically increasing the risk of insolvency.

Measure has backing of major life insurance companies

Insurance regulators have been looking into the issue of principles-based reserving for several years. The measure has come up to a vote several times in the past, but has routinely been delayed due to concerns regarding its impact on the nation’s life insurance sector. Many of the country’s largest life insurance companies are supporting the measure, suggesting that the current system they are compelled to abide by is not efficient and does not take into account changes that are facing the current marketplace.

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