WSR 98-05-026

PERMANENT RULES

INSURANCE COMMISSIONER'S OFFICE

[Insurance Commissioner Matter No. R 96-13--Filed February 6, 1998, 4:39 p.m.]

Date of Adoption: February 6, 1998.

Purpose: These rules allow for new products [that] clarify and enable Washington consumers to take advantage of new federal tax laws. They also clarify and update existing rules.

Citation of Existing Rules Affected by this Order: Amending WAC 284-23-610, 284-23-620, 284-23-640, 284-23-650, 284-23-660, 284-23-690, 284-23-710, and 284-23-730.

Statutory Authority for Adoption: RCW 48.02.060, 48.30.010.

Other Authority: RCW 48.11.020.

Adopted under notice filed as WSR 98-03-076 on January 21, 1998.

Changes Other than Editing from Proposed to Adopted Version: WAC 284-23-620 was changed in three places: Subsection (4) the final sentence was changed to read "Such care services shall be provided at any level of care." Subsection (5) was changed by deleting the words "skilled or intermediate" before the words "nursing home." Subsection (6)(d) was changed with deletion of the words "intravenously or by feeding tube."

WAC 284-23-645 was changed to permit qualification under a separate provision of the federal tax code.

WAC 284-23-650 was changed to ensure adequate disclosure of the impact of qualifying under the additional provision in WAC 284-23-645.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, amended 5, repealed 0; Federal Rules or Standards: New 0, amended 5, repealed 0; or Recently Enacted State Statutes: New 0, amended 0, repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, amended 5, repealed 0.

Number of Sections Adopted on the Agency's own Initiative: New 0, amended 9, repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, amended 8, repealed 0.

Number of Sections Adopted using Negotiated Rule Making: New 0, amended 0, repealed 0; Pilot Rule Making: New 0, amended 0, repealed 0; or Other Alternative Rule Making: New 9, amended 0, repealed 0.

Effective Date of Rule: Thirty-one days after filing.

February 6, 1998

Greg J. Scully

Chief Deputy Commissioner

AMENDATORY SECTION (Amending Order R 94-18, filed 8/29/94, effective 9/29/94)

WAC 284-23-610 Authority, finding, purpose, and scope. (1) The purpose of this regulation, WAC 284-23-600 through 284-23-730, is to define certain minimum standards for the regulation of accelerated benefit provisions of individual and group life insurance policies, a single violation of which will be deemed to constitute an unfair claims settlement practice. The commissioner finds and hereby defines it to be an unfair act or practice and an unfair method of competition for any insurer to provide accelerated benefits except as provided in this regulation.

(2) The commissioner finds that accelerated benefits in life insurance policies are primarily mortality risks rather than morbidity risks. The commissioner further finds that accelerated benefits are optional modes of settlement of proceeds under life insurance proceeds under RCW 48.11.020. No qualifying event as defined under WAC 284-23-620(3) changes the nature of the underlying life insurance policy. No accelerated benefits provision shall be called or marketed as long-term care as defined under RCW 48.84.020(1).

(3) This regulation applies to all accelerated benefit provisions of individual and group life insurance policies and riders which are issued or delivered to a resident of this state, on or after the effective date of this regulation. The regulation applies to both policies and riders. It also applies to solicitations for the sale of accelerated benefits, whether in the form of policies or riders.

(4) ((This regulation does not apply to any long term care insurance policies, contracts, or certificates.

(5))) This regulation does not require inclusion or offering of any accelerated benefit in a life insurance policy. This regulation regulates those accelerated benefits which individual and group life insurers choose to advertise, offer, or market on or after the effective date of this regulation.

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-610, filed 8/29/94, effective 9/29/94.]

AMENDATORY SECTION (Amending Order R 94-18, filed 8/29/94, effective 9/29/94)

WAC 284-23-620 Definitions. Unless the context clearly requires otherwise, the definitions in this section apply throughout this regulation.

(1) "Accelerated benefits" means benefits payable under an individual or group life insurance policy. They are primarily mortality risks, rather than morbidity risks. Accelerated benefits may also mean optional modes of settlement of proceeds under life insurance policies. Accelerated benefits are benefits:

(a) Payable to either the policyholder of an individual life policy or to the certificateholder of a group life policy, during the lifetime of the insured, in anticipation of death, or upon the occurrence of certain specified life-threatening, terminal, or catastrophic conditions defined by the policy or rider as described in subsection (3) of this section; and

(b) Which reduce or eliminate the death benefit otherwise payable under the life insurance policy or rider; and

(c) Which are payable upon the occurrence of a single qualifying event which results in the payment of a benefit amount fixed at the time the accelerated benefit is paid.

(2) "Qualified actuary" means a person who is a qualified actuary as defined in WAC 284-05-060.

(3) "Qualifying event" means one or more of the following:

(a) A medical condition which ((would result in a drastically limited life span as specified in the policy or rider, such as twenty-four months or less)) a physician has certified is reasonably expected to result in death twenty-four months or less after the date of certification;

(b) A medical condition which has required or requires extraordinary medical intervention; for example, major organ transplants or the use of continuous life support, without which the insured would die;

(c) Any condition which usually requires continuous confinement in any eligible institution as defined in the policy or rider, if the insured is expected to remain there for the rest of his or her life;

(d) Any medical condition which, in the absence of extensive or extraordinary medical treatment, would result in a drastically limited life span of the insured. Such medical conditions may include, for example:

(i) Coronary artery disease resulting in an acute infarction or requiring surgery;

(ii) Permanent neurological deficit resulting from cerebral vascular accident;

(iii) End stage renal failure;

(iv) Acquired immune deficiency syndrome; or

(v) Other medical conditions which the insurance commissioner approves for any particular filing;

(e) Any condition which requires either community-based care or institutional care; or

(f) A medical condition that results in an insured being certified by a licensed health care practitioner as chronically ill by meeting either or both of the following standards within the preceding twelve-month period:

(i) The insured is expected to be unable to perform (without substantial assistance from another individual) at least two activities of daily living without a deficiency for a period of at least ninety days due to a loss of functional capacity; or

(ii) The insured requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment.

(4) "Community based care" means services including, but not limited to: (a) Home delivered nursing services or therapy; (b) custodial or personal care; (c) day care; (d) home and chore aid services; (e) nutritional services, both in-home and in a communal dining setting; (f) respite care; (g) adult day health care services; or (h) other similar services furnished in a home-like or residential setting that does not provide overnight care. Such services shall be provided at any level of care.

(5) "Institutional care" means care provided in a hospital, nursing home, or other facility certified or licensed by the state primarily affording diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services. Such a facility provides twenty-four-hour nursing services on its premises or in facilities available to the institution on a formal prearranged basis.

(6) "Activities of daily living" on which an insurer intends to rely as a measure of functional incapacity shall be defined in the policy, and shall include all of the following:

(a) Bathing: The ability of the insured to wash himself or herself either in the tub or shower or by sponge bath, including the task of getting into or out of a tub or shower.

(b) Continence: The ability of the insured to control bowel and bladder functions; or in the event of incontinence, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag).

(c) Dressing: The ability of the insured to put on and take off all items of clothing, and necessary braces, fasteners, or artificial limbs.

(d) Eating: The ability of the insured to feed himself or herself by getting food and drink from a receptacle (such as a plate, cup, or table) into the body.

(e) Toileting: The ability of the insured to get to and from the toilet, get on and off the toilet, and perform associated personal hygiene.

(f) Transferring: The ability of the insured to move in and out of a chair, bed, or wheelchair.

(7) "Licensed health care practitioner" means any physician, any registered professional nurse, or registered social worker.

(8) "Substantial assistance" means:

(a) "Hands-on assistance" - the physical assistance of another person without which the insured would be unable to perform the activity of daily living; and

(b) "Standby assistance" - the physical presence of another person within arm's reach of the insured that is necessary to prevent, by physical intervention, injury to the insured while the insured is performing the activity of daily living.

(9) "Severe cognitive impairment" means a loss or deterioration in intellectual capacity that is:

(a) Comparable to (and includes) Alzheimer's disease and similar forms of irreversible dementia; and

(b) Measured by clinical evidence and standardized tests that reliably measure impairment in the insured's (i) short-term or long-term memory, (ii) orientation as to people, places, or time, and (iii) deductive or abstract reasoning.

(10) "Substantial supervision" means continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the insured from threats to his or her health or safety.

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-620, filed 8/29/94, effective 9/29/94.]

AMENDATORY SECTION (Amending Order R 94-18, filed 8/29/94, effective 9/29/94)

WAC 284-23-640 Criteria for payment. (1) Payment options ((shall)) may include, the option of taking the benefit as a lump sum. The benefit shall not be made available as an annuity contingent upon the life of the insured.

(2) Except with the prior written approval of the commissioner no insurer may restrict the use of the proceeds from the payment of accelerated benefits.

(3) If any part of the death benefit remains after payment of an accelerated benefit, then any applicable accidental death benefit payable under the policy or rider shall not be affected by the payment of the accelerated benefit. The contract or rider shall include a statement that the insured's accidental death benefit will not be affected by the acceleration of benefits.

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-640, filed 8/29/94, effective 9/29/94.]

NEW SECTION

WAC 284-23-645 Tax qualified accelerated benefit provisions. Accelerated benefit provisions intended to qualify under section 101(g) (26 U.S.C. 101(g)) or section 7702B (26 U.S.C. 7702B) of the Internal Revenue Code of 1986 as amended by Public Law 104-191 shall only provide the benefit triggers in WAC 284-23-620 (3)(a) and (f). Accelerated benefit provisions that include other triggers shall not be marketed or sold as complying or intending to comply with Public Law 104-191, 26 U.S.C. 101(g), or 26 U.S.C. 7702B as amended by Public Law 104-191.

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AMENDATORY SECTION (Amending Order R 94-25, filed 12/6/94, effective 1/6/95)

WAC 284-23-650 Disclosure statement. (1) The words "accelerated benefit" must be included in the required title of every life insurance policy or rider that includes a provision for accelerated benefits. Accelerated benefits shall not be described, advertised, marketed, or sold as either long-term care insurance or as providing long-term care benefits.

(2) Possible tax consequences and possible consequences on eligibility for receipt of Medicare, Medicaid, Social Security, Supplemental Security Income (SSI), or other sources of public funding shall be included in every disclosure statement.

(a) ((A disclosure statement shall be provided which contains a statement that receipt of accelerated benefits may be taxable and that assistance should be sought from a personal tax advisor. The disclosure statement shall be prominently displayed on the first page of the policy or rider and any other related materials.

(b))) The disclosure form shall include a disclosure statement. The disclosure statement shall be prominently displayed on the first page of the policy, rider, or certificate. The disclosure statement shall contain substantially the following: "If you receive payment of accelerated benefits from a life insurance policy, you may lose your right to receive certain public funds, such as Medicare, Medicaid, Social Security, Supplemental Security, Supplemental Security Income (SSI), and possibly others. Also, receiving accelerated benefits from a life insurance policy may have tax consequences for you. We cannot give you advice about this. You may wish to obtain advice from a tax professional or an attorney before you decide to receive accelerated benefits from a life insurance policy."

(b)(i) The disclosure statement shall state whether or not the accelerated life is intended to qualify under section 101(g) (26 U.S.C. 101(g)) or section 7702B (26 U.S.C. 7702B) of the Internal Revenue Code of 1986 as amended by Public Law 104-191.

(ii) If the accelerated life insurance benefit is intended to comply with section 7702B, the disclosure statement must begin with the following statement: "This accelerated life benefit does not and is not intended to qualify as long-term care under Washington State law. It may not provide all of the benefits or meet all of the standards required of long-term care under Washington law and regulations. Washington State law prevents this accelerated life benefit from being marketed or sold as long-term care. For the purposes of federal tax law only, it is intended to be a `qualified long-term care product.'"

(c) The disclosure ((statement)) form must be provided (i) to the applicant for an individual or group life insurance policy at the time application is made for the policy or rider; and (ii)(A) to the individual insured at the time the owner of an individual life insurance policy submits a request for payment of the accelerated benefit, and before the accelerated benefit is paid, or (B) to the individual certificateholder at the time an individual certificateholder of a group life insurance policy submits a request for payment of the accelerated benefit, and before the accelerated benefit is paid. It is not sufficient to provide this required disclosure statement only to the holder of a group policy.

(3) The disclosure ((statement)) form shall give a brief and clear description of the accelerated benefit. It shall define all qualifying events which can trigger payment of the accelerated benefit. It shall also describe any effect of payment of accelerated benefits upon the policy's cash value, accumulation account, death benefit, premium, policy loans, and policy liens.

(a) In the case of agent solicited insurance, the agent shall provide the disclosure form to the applicant before or at the time the application is signed. Written acknowledgement of receipt of the disclosure statement shall be signed by the applicant and the agent.

(b) In the case of a solicitation by direct response methods, the insurer shall provide the disclosure form to the applicant at the time the policy is delivered, with a written notice that a full premium refund shall be made if the policy is returned to the insurer within the free look period.

(c) In the case of group life insurance policies, the disclosure ((statement)) form shall be contained in the certificate of coverage, ((or)) and may be contained in any other related document furnished by the insurer to the certificateholder.

(4) If there is a premium or cost of insurance charge for the accelerated benefit, the insurer shall give the applicant a generic illustration numerically demonstrating any effect of the payment of an accelerated benefit upon the policy's cash value, accumulation account, death benefit, premium, policy loans, or policy liens.

(a) In the case of agent solicited insurance, the agent shall provide the illustration to the applicant either before or at the time the application is signed.

(b) In the case of a solicitation by direct response methods, the insurer shall provide the illustration to the applicant concurrently with delivery of the policy to the applicant.

(c) In the case of group life insurance policies, the disclosure form shall be included in the certificate of insurance or any related document furnished by the insurer to the certificateholder.

(5)(a) Insurers with financing options other than as described in WAC 284-23-690 (1)(b) and (c) of this regulation, shall disclose to the policyowner any premium or cost of insurance charge for the accelerated benefit. Insurers shall make a reasonable effort to assure that the certificateholder on a group policy is made aware of any premium or cost of insurance charge for the accelerated benefits, if he or she is required to pay all or any part of such a premium or cost of insurance charge.

(b) Insurers shall furnish an actuarial demonstration to the Insurance Commissioner when filing an individual or group life insurance policy or rider form that provides accelerated benefits, showing the method used to calculate the cost for the accelerated benefit.

(6) Insurers shall disclose to the policyholder any administrative expense charge. The insurer shall make a reasonable effort to assure that the certificateholder on a group policy is made aware of any administrative expense charge if he or she is required to pay all or any part of any such charge.

(7) When the owner of an individual policy or the certificateholder of a group policy requests payment of an accelerated benefit, within 20 days of receiving the request the insurer shall send a statement to that person, and to any irrevocable beneficiary, showing any effect that payment of an accelerated benefit will have on the policy's cash value, accumulation account, death benefit, premium, policy loans, and policy liens. This statement shall disclose that receipt of accelerated benefit payments may adversely affect the recipient's eligibility for Medicaid or other government benefits or entitlements. When the insurer pays the accelerated benefit, it shall issue an amended schedule page to the owner of an individual policy, or to the certificateholder of a group policy, showing any new, reduced in-force amount of the policy. When more than one payment of accelerated benefit is permitted under the policy or rider, the insurer shall send a revised statement to the owner of an individual policy, or to the certificateholder of a group policy, when a previous statement has become invalid due to payment of accelerated benefits.

[Statutory Authority: RCW 48.02.060 and 48.30.010. 94-24-072 (Order R 94-25), 284-23-650, filed 12/6/94, effective 1/6/95. Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-650, filed 8/29/94, effective 9/29/94.]

AMENDATORY SECTION (Amending Order R 94-18, filed 8/29/94, effective 9/29/94)

WAC 284-23-660 Effective date of the accelerated benefit. The accelerated benefit provision shall be effective for a qualifying event caused by an accident((s)) on the effective date of the policy or rider. The accelerated benefit provision shall be effective for illness no more than thirty days following the effective date of the policy or rider.

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-660, filed 8/29/94, effective 9/29/94.]

AMENDATORY SECTION (Amending Order R 94-25, filed 12/6/94, effective 1/6/95)

WAC 284-23-690 Actuarial standards, financing options, effect on cash value, and effect on policy loans. (1) An insurer shall select ((one of)) among the following finance options. Under subsection (1)(a) and (1)(b) of this section, the accelerated death benefit is regarded as completely settled. Premiums, if any, payable for the remaining coverage shall be reduced proportionally.

(a) An insurer may require a premium charge or cost of insurance charge for the accelerated benefit. These charges shall be based on sound actuarial principles. No additional charges may be imposed to collect benefits.

(b) An insurer may pay the present value of the face amount of the insured's policy or certificate. The calculation of that present value shall be based upon any applicable discount appropriate to the policy design. The interest rate or interest rate methodology used in the calculation shall be based upon sound actuarial principles and disclosed in the policy or actuarial memorandum. The maximum interest rate used shall be no more than the greater of:

(i) The current yield on ninety day treasury bills; or

(ii) The current maximum statutory adjustable policy loan interest rate.

(c) An insurer may accrue an interest charge on the amount of the accelerated benefits. The interest rate or the interest rate methodology used in the calculation shall be based upon sound actuarial principles and shall be disclosed in the policy or the actuarial memorandum. The maximum interest rate used shall be no more than the greater of:

(i) The current yield on ninety day treasury bills; or

(ii) The current maximum statutory adjustable policy loan interest rate.

The interest rate accrued on the portion of the lien which is equal in amount to the cash value of the policy at the time the benefit is accelerated shall be no more than the loan interest rate stated in the policy.

(d) Any other financing option that the commissioner is satisfied is not contrary to the best interests of the public. No financing option shall be offered by any insurer without the prior written approval of the commissioner.

(2) When an accelerated benefit is payable, there shall be no more than a pro rata reduction in the cash value based upon the percentage of death benefit accelerated to produce the accelerated benefit payment; provided, however, that the payment of accelerated benefits, any administrative expense charges, any future premiums, and any accrued interest may be considered a lien against the death benefit of the policy or rider, and the access to any remaining cash value may be restricted to the excess of the cash value over the sum of any other outstanding loans and any lien. Future access to additional policy loans may be limited to any excess of the cash value over the sum of the lien and any other outstanding policy amounts. When payment of an accelerated benefit results in a pro rata reduction in the cash value, the payment may not be applied toward repaying an amount greater than a pro rata portion of any outstanding policy loans.

(3) In the case of an acceleration as defined at WAC 284-23-620 (3)(e), an insurer shall use only one of the finance options permitted in this section for any insurance policy or certificate. An insurer may not place a lien on the face amount of an insured's policy or certificate and at the same time discount the face amount or accumulation amount.

[Statutory Authority: RCW 48.02.060 and 48.30.010. 94-24-072 (Order R 94-25), 284-23-690, filed 12/6/94, effective 1/6/95. Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-690, filed 8/29/94, effective 9/29/94.]

AMENDATORY SECTION (Amending Order R 94-18, filed 8/29/94, effective 9/29/94)

WAC 284-23-710 Filing requirements. The filing of all forms containing accelerated benefit provisions((, including both policies and riders,)) is required, pursuant to RCW 48.18.100 and WAC 284-58-130.

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010. 94-18-029 (Order R 94-18), 284-23-710, filed 8/29/94, effective 9/29/94.]

AMENDATORY SECTION (Amending Order R 94-18, filed 8/29/94, effective 9/29/94)

WAC 284-23-730 Resolution of disputes regarding occurrence of qualifying events. (((1))) In the event the insured's health care provider and a health care provider appointed by the insurer disagree on whether a qualifying event has occurred, the opinion of the health care provider appointed by the insurer is not binding on the claimant. The parties shall attempt to resolve the matter promptly and amicably. The policy or rider providing the accelerated benefit shall provide that in case the disagreement is not so resolved, the claimant has the right to mediation or binding arbitration conducted by a disinterested third party who has no ongoing relationship with either party. Any such arbitration shall be conducted in accordance with chapter 7.04 RCW. As part of the final decision, the arbitrator or mediator shall award the costs of arbitration to one party or the other or may divide the costs equally or otherwise.

(((2) To select the arbitrator or mediator, the claimant shall choose one health care provider, who may or may not be the claimant's regular health care provider or otherwise associated with or related to the claimant. The insurer shall choose one health care provider, who may or may not be an employee or otherwise associated with the insurer. Those two choices shall be made within seven days after the later of those two health care providers has been chosen, those two health care providers shall agree on and appoint an arbitrator or mediator. The arbitrator or mediator will hear the case or otherwise commence resolving it within seven days of his or her appointment, and shall render a decision within fourteen days after appointment.

(3) "Health care provider," as used in this regulation, means a health care provider acting within the scope of his or her license.))