BILL NUMBER: S7222
SPONSOR: BAILEY
 
TITLE OF BILL:
An act to amend the insurance law, in relation to indexing fixed amounts
and clarifying compliance
 
PURPOSE OR GENERAL IDEA OF BILL:
This bill would modernize the Insurance Law by updating fixed amounts in
the statute to account for inflation since the statute's enactment,
adjusting eligibility for certain subsidies to account for the subse-
quent enactment of various states' salary history ban laws, and clarify-
ing a number of compliance-related provisions.
 
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 amends section 4228 of the insurance law to add definitions
for CPI, CPI for the preceding year, and percent increase in inflation.
Section 2 amends section 4228 of the insurance law to increase the stat-
utory limit on prizes or awards that can be provided to an agent to
account for inflation since the statute's enactment, and index those
amounts to inflation moving forward.
Section 3 amends Section 4228 of the insurance law to clarify the 25
percent limit on compensation for life insurance sales.
Section 4 amends Section 4228 of the insurance law to modernize the way
in which eligibility for agent training allowance subsidies is deter-
mined.
Section 5 amends Section 4228 of the insurance law to clarify annual
testing requirements and clarify that the same filing requirements apply
to both new and in-force compensation.
Section 6 amends Section 4228 of the insurance law to provide insurers
with additional time to recover overpayments.
Section 7 amends Section 4228 of the insurance law to clarify the defi-
nition of selling expenses.
 
JUSTIFICATION:
New York's Insurance Law puts limits on commissions to agents, non-cash
compensation, and selling expenses that insurance companies can incur
when selling life insurance and annuities. The statute also includes
fixed limits on prior income a candidate may have earned to be eligible
for new agent training subsidies. Over time, those monetary limits have
become outdated and no longer serve their intended purpose, as they have
lost approximately half their value due to inflation. This bill would
update the limits and index future increases based on the consumer price
index. The indexing approach will benefit new insurance agents and
insurance companies alike, as they will both be able to plan for future
increases and budget more efficiently.
The bill also adjusts the eligibility requirements for new agents to
receive training allowance subsidies. Since the statute's enactment, a
growing number of states have enacted salary history ban laws, which
prohibit companies from inquiring into an applicant's former salary. In
these states, insurance companies cannot comply with both the eligibil-
ity requirement of section 4228 and the state's salary history ban law.
This adjustment to eligibility requirements will benefit the public by
making it easier for candidates to apply for and become insurance
agents, increasing employment opportunities as well as expanding the
ranks of insurance agents who can serve a public need.
The bill also clarifies the definition of selling expenses to ensure
that insurers have clear compliance guidelines, making it easier for
them to support their agents. The current definition of "total selling
expenses" includes non-exhaustive examples and vague terms, making it
difficult to administer with certainty. In addition, the bill removes
from "total selling expenses" issuers' ordinary advertising expenses to
promote their products. To the extent that Section 4228 puts limits on
"total selling expenses," these should be limited to commission, other
forms of agent compensation, or proxies for these items, i.e., items
that would normally be part of the agent's overhead but for the issuer
defraying the expense. In contrast, items such as direct solicitation
advertising, illustrations, and advanced underwriting support are items
that an issuer should supply on its own account with respect to its own
products. These are not items that would otherwise be part of an agent's
overhead expenses. Likewise, certain sales conferences and training
meetings advertising the issuer's products would normally be understood
to be part of the issuer's overhead and would not be expenses the agent
would otherwise occur on their own account.
Lastly, Section 4228 requires insurers to file annual reports with the
Department of Financial Services (DFS) and to demonstrate that their
agent compensation plans comply with the statute's payment limits.
These annual reports include statements of self-support for each life
insurance policy ("self-support" meaning that the premium charged for a
life insurance policy or annuity is able to cover its expenses, with the
assumptions used to demonstrate self-support being based on reasonable
actuarial assumptions about interest, mortality, taxes, and other
factors). This bill clarifies what insurers are required to test and
file with DFS, and that filing requirements apply to both new and chang-
es to in-force compensation. The bill makes explicit that nothing in the
statute prohibits changes to in-force compensation, so long as the
changed compensation meets all other Section 4228 requirements.
 
PRIOR LEGISLATIVE HISTORY:
New bill.
 
FISCAL IMPLICATIONS:
None.
 
EFFECTIVE DATE:
Immediately.

Statutes affected:
S7222: 4228 insurance law, 4228(b) insurance law, 4228(e) insurance law, 4228(f) insurance law