Original Notice.

Preproposal statement of inquiry was filed as WSR 98-17-084.

Title of Rule: Out-of-state groups.

Purpose: These rules were identified in the commissioner's regulatory improvement process as rules that may need to be updated and clarified. Additionally, the commissioner is proposing these changes to the overall regulatory scheme to make it a more complete, efficient, and effective way of regulating this area and protecting consumers receiving coverage in Washington state.

Statutory Authority for Adoption: RCW 48.02.060, 48.30.010.

Statute Being Implemented: RCW 48.01.020, 48.01.060.

Summary: The proposed changes clarify the scope and language of the existing regulation and eliminate possible areas of ambiguity that may exist. Exemptions are eliminated. Certain documents must be filed prior to use. Disclosure requirements are revised.

Reasons Supporting Proposal: Some aspects of the existing rule have been confusing to some parties. The amendments should aid in clarifying the scope of the rules, be easier to implement and administer, and further protect the consumer.

Name of Agency Personnel Responsible for Drafting: Jon Hedegard, Olympia, (360) 664-4629; Implementation: Bethany Weidner, Olympia, (360) 664-8137; and Enforcement: Jeffrey Coopersmith, Olympia, (360) 664-4615.

Name of Proponent: Deborah Senn, Insurance Commissioner, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The proposed rules eliminate any possible ambiguity about whether or not the regulation applies to annuities, this has not been an issue of concern yet but the amendments preclude possible problems. The proposed rules eliminate certain group exemptions from the regulation. The proposed rules change the focus of the regulation from the master policy to the certificate and other documents that provide coverage in Washington. The proposed rules require filing of certain documents thirty days prior to use rather than upon request. Existing disclosure requirements are amended. Editing and clarity changes have also been made.

Proposal Changes the Following Existing Rules: WAC 284-30-600 and 284-30-610 are amended to eliminate possible ambiguity about whether or not the sections apply to annuities; changes the focus of the regulation from the master policy to the certificate and other documents that provide coverage in Washington; repeal the section that addresses the purpose of groups; require filing of certain documents prior to use rather than upon request; strengthen the disclosure to the consumer; and clarify the existing regulation.

A small business economic impact statement has been prepared under chapter 19.85 RCW.

The commissioner's regulatory improvement process identified these sections for possible updating and clarification, and a review commenced regarding the overall regulatory scheme for group coverages offered by out-of-state entities. The review was aimed at determining whether current legal code offers the most complete, efficient, and effective way of regulating this area and protecting consumers receiving coverage in Washington state.

The proposed rule embodies the results of the review. It was determined that there were places in the existing rules where its requirements could be more clearly stated. The proposed rule also recommends changing the language of certain disclosure forms to make them more clear, and suggests changes to some filing requirements. Perhaps most significantly, the proposal recommends that consumers who do not currently receive the benefits of state regulations in the area of group life and disability policies begin to enjoy the protections offered by these regulations. Under some circumstances the current regulation exempts such arrangements from the regulatory framework. After review, the agency believes there is no longer justification for these exemptions. They leave some state consumers with fewer protections than others who buy substantially similar products from either in-state or out-of-state entities, and they may also disadvantage producers that are required to comply with Washington regulations.

Is the Rule Required by Federal Law or Federal Regulation? This rule is not required by federal law or regulation.

What Industry is Affected by the Proposed Rule? Affected industries include Life Insurance (SIC 6311) and Accident and Health Insurance (SIC 6321).

List the Specific Parts of the Proposed Rule, Based on the Underlying Statutory Authority (RCW Section), Which may Impose a Cost to Business: WAC 284-30-600, the existing section puts requirements on certain life and disability insurers that affect life or disability insurance coverage on individuals in Washington under a group policy which is delivered to a policyholder outside this state. RCW 48.30.010, regarding unfair practices, provides statutory authority for the rule. Primarily, the portion of the proposed rule relating to this section rescinds exemptions contained in the existing rule that are applicable when an individual does not pay at least a substantial portion of the coverage, or when the insurance is written for members of certain associations. The proposed rule will therefore ensure that all Washington consumers of out-of-state products receive the protections provided by Washington life and disability regulations. This section may impose a cost to businesses by requiring that currently exempted entities follow the life and disability regulations that currently cover other out-of-state group insurers.

WAC 284-30-610, the existing section defines unfair practices with respect to the solicitation of coverage under out-of-state group policies. RCW 48.30.010, regarding unfair practices, provides statutory authority for this section of the rule. The proposed rule makes some technical clarifications to the existing regulation, such as amending the language of the disclosure statement form provided to consumers. It also requires filing of certificate forms and other related forms providing coverage to consumers in Washington prior to their use, and allows more time for filing disclosure forms with the commissioner. This section of the rule may impose some cost to businesses due to amendment and filing of forms.

What Percentage of the Industries in the Four-Digit Standard Industrial Classification will be Affected by the Rule? Using the Office of Management and Budget's 1987 Standard Industrial Classification Manual, it appears that seven of thirteen industries (54%) within SIC 6311 (Life Insurance), and seven of eleven industries (64%) within SIC 6321 (Accident and Health Insurance) may be affected by the proposed rule.

Will the Rule Impose a Disproportionately Higher Economic Burden on Small Businesses Within the Four-Digit Classification? The rule is not expected to impose a disproportionately higher economic burden on small businesses. This is primarily because the rule is not expected to affect any small businesses as defined by Washington law. During development of the proposed rule the Office of the Insurance Commissioner (OIC) has not been aware of any profit-seeking entities with fewer than fifty employees that would be affected by it. The agency also sent a questionnaire to a cross-section of the industry inquiring whether any of the recipients qualified as small businesses; OIC has received no responses indicating that the rule affects small businesses as defined by Washington law.

Can Mitigation be Used to Reduce the Economic Impact of the Rule on Small Businesses and Still Meet the Stated Objective of the Statutes that are the Basis of the Proposed Rule? Since to the agency's knowledge the proposed rule will not affect businesses with fewer than fifty employees, mitigation in this regard is not necessary.

What Steps will the Commissioner take to Reduce the Costs of the Rule on Small Businesses? Please see above.

Which Mitigation Techniques have been Considered and Incorporated into the Proposed Rule? Please see above.

Which Mitigation Techniques were Considered for Incorporation into the Proposed Rule but were Rejected, and Why? Please see above.

Briefly Describe the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule: Currently, nearly all insurers offering out-of-state insurance to Washington consumers must comply with applicable sections of the Washington Administrative Code and/or the Revised Code of Washington governing life insurance, disability insurance, long-term care insurance or Medicare supplemental insurance. As stated earlier in this document, certain insurers as defined in subsection (2) of the existing rule are not required to comply with the state regulations. After the adoption of the proposed rule, out-of-state entities that currently offer group life and disability insurance, but are exempt from and do not otherwise comply with the respective WAC and RCW sections, will have to comply. These WAC and RCW sections contain various compliance requirements related to the particular products being offered.

The proposed rule requires some changes to disclosure forms used by out-of-state entities. It also requires insuring entities to file certificate forms and other related forms providing coverage in Washington; under current regulation these forms are required but only need to be made available to the commissioner upon the commissioner's request.

List the Kinds of Professional Services that a Small Business is Likely to Need in Order to Comply with the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule: Since there are no known small businesses that will be affected by the proposed rule, it is not relevant to list the kinds of professional services that would be required by them.

Analyze the Cost of Compliance: The cost of compliance for the rule has not yet been calculated; however, for the purposes of this small business economic impact statement, the cost of compliance is not relevant. Since there are no known small businesses that will be affected by the proposed rule, there is not a need to calculate costs to small businesses relative to large businesses.

Compare the Cost of Compliance for Small Business with the Cost of Compliance for the Largest Business in the Same Four-Digit Classification: Since there are no known small businesses that will be affected by the proposed rule, such a comparison is not applicable to this rule making.

Have Businesses that will be Affected been Asked What the Economic Impact will be? Yes, the OIC sent a detailed questionnaire regarding the proposed rule's potential economic impacts to a cross section of entities that may be affected by the rule. Over forty companies and associations received the questionnaire. These forty entities included companies sited in Washington and in other states. The questionnaire asked both specific and general questions regarding potential economic impacts of the proposal.

How did the Commissioner Involve Small Business in the Development of the Proposed Rule? The OIC was not aware of any for-profit entities with fewer than fifty employees that would be affected by the proposed rule. Nonetheless, it sent the economic impact questionnaire to several relatively small companies and associations as well as to national industry leaders in order to solicit input.

How and When were Affected Small Businesses Advised of the Proposed Rule? Once again, OIC was not aware of any small businesses affected by the proposed rule. The economic impact questionnaire was sent to several smaller businesses. In addition, the preproposal statement of inquiry regarding this rule-making process was officially filed in August of 1998. The agency has not received any inquiries from small businesses regarding the rule.

A copy of the statement may be obtained by writing to Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, Internet KacyB@oic.wa.gov, phone (360) 664-3784, fax (360) 664-2782.

Section 201, chapter 403, Laws of 1995, applies to this rule adoption.

Hearing Location: 14th and Water, John A. Cherberg Building, Senate Hearing Room 1, Olympia, Washington, on July 25, 2000, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Lori Villaflores by July 24, 2000, TDD (360) 407-0409.

Submit Written Comments to: Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacyb@oic.wa.gov, fax (360) 664-2782, by July 24, 2000.

Date of Intended Adoption: August 8, 2000.

June 21, 2000

D. J. Patin

Deputy Commissioner

OTS-2452.2

AMENDATORY SECTION(Amending Order 90-14, filed 1/16/91, effective 4/1/91)

WAC 284-30-600
Unfair practices with respect to out-of-state group life and disability insurance.

(1) ((Pursuant to)) under RCW 48.30.010, ((except as provided in subsection (2) of this section)) it is an unfair method of competition and an unfair practice for any insurer to ((effect life)) engage in any insurance transaction, as defined in RCW 48.01.060, regarding life insurance, annuities, or disability insurance coverage on individuals in this state under a group policy ((which is)) delivered to a policyholder outside this state when:

(a) ((Such)) The policy or ((any)) certificate ((used therewith)) providing coverage in the state of Washington, including, but not limited to, applications, riders, or endorsements, contains any inconsistent, ambiguous or misleading clauses, or exceptions and conditions which unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the ((policy)) contract.

(b) ((Such)) The policy or ((any certificate used therewith)) certificate providing coverage in the state of Washington, including, but not limited to, applications, riders, or endorsements, has any title, heading, or other indication of its provisions which is misleading.

(c) ((Such)) The policy or certificate delivered to residents of the state of Washington does not include all terms and conditions of the coverage.

(d) The type of group being covered under the contract providing coverage in the state of Washington does not qualify for group life insurance or group disability insurance under the provisions of Title 48 RCW.

(e) The coverage is being solicited by deceptive advertising.

(((d))) (f) With respect to disability insurance, the ((out-of-state group)) policy or certificate providing coverage in the state of Washington does not:

(i) Provide that claims will be processed in compliance with RCW 48.21.130 through ((48.21.146)) 48.21.148;

(ii) Meet the requirements as to benefits and coverage mandated by chapter 48.21 RCW and rules effectuating that chapter, specifically including those set forth in chapter 284-51 WAC, and WAC 284-30-610 ((and)), 284-30-620 and 284-30-630;

(iii) With respect to long-term care insurance, also meet the requirements of chapter 48.84 RCW and chapter 284-54 WAC;

(iv) With respect to Medicare supplemental insurance, also meet the requirements of chapter 48.66 RCW and chapter 284-66 WAC; and

(v) Meet the loss ratio standards applicable to group insurance ((pursuant to)) under RCW 48.66.100 and 48.70.030 and chapter 284-60 WAC ((284-60-060)).

(((e))) (g) With respect to life insurance, the out-of-state group policy or certificate providing coverage in the state of Washington fails to comply with the provisions of ((RCW 48.24.100 through 48.24.260, WAC 284-23-550, 284-30-620, and)):

(i) Chapter 48.24 RCW;

(ii) WAC 284-23-550 and 284-23-600 through 284-23-730;

(iii) WAC 284-30-620; and

(iv) WAC 284-30-630.

(2)(((a) Unless the individual insured pays all or substantially all of the cost of his or her coverage, subsection (1) of this section is not applicable to life or disability insurance coverage provided by any group policy issued for a group which would be qualified for group life insurance if the master policy were delivered to a policyholder in this state pursuant to RCW 48.24.035, 48.24.040, 48.24.050, or 48.24.095.

(b) Subsection (1) of this section is not applicable with respect to coverage under a master policy issued for an association group which would be qualified for group insurance under such policy if it were delivered to the policyholder in this state pursuant to the requirements of RCW 48.24.045:

(i) If such association clearly has a genuine purpose and existence of significant value to its members independent of its status as the group policyholder and independent of its involvement in insurance on behalf of its members, and if, further, there is a realistic and demonstrable basis related to the situs of the association or the residencies of a substantial portion of its members justifying the issuance of the group policy in the other state; or

(ii) If such association provides such coverage to each of its members, except those who may not qualify by reason of age, at no charge to them other than the standard membership dues or costs paid by each member.

(c) Subsection (1) of this section is not applicable with respect to a group policy issued for a group which qualifies for group insurance pursuant to RCW 48.24.060, 48.24.080, and 48.24.090.

(d) Except for coverages excluded by (a), (b), and (c) of this subsection, this section applies to all life and disability coverage on individuals in this state under group policies which are delivered to policyholders outside this state, specifically including those issued for trustee and other groups which are eligible for group insurance pursuant to RCW 48.21.010, 48.21.030, 48.24.020, 48.24.045, and 48.24.070.

(3))) Except as provided in subsection (((4))) (3)(c) of this section, for purposes of this section it is immaterial whether the ((insurance)) coverage is offered by means of a solicitation through: A sponsoring organization((, through the mail or other mass communication media, or through)); the mail broadcast or print media; electronic communication, including electronic mail and websites; licensed agents or brokers; or any other method of communication.

(((4))) (3) It is further defined to be an unfair practice for any insurer ((effecting)) marketing group insurance coverage in this state ((through policies delivered to an out-of-state master policyholder to fail)) to do the following with respect to ((such insurance)) the coverage:

(a) ((It must)) To fail to comply with the requirements of this state relating to advertising and claims settlement practices, and ((it must, upon request,)) to fail to furnish the commissioner, upon request, copies of all advertising materials intended for use in this state;

(b) ((It must make available copies of any policy forms, and certificate forms used therewith, upon request of the commissioner; and

(c) Where the sale of such coverage to individuals in this state will be through solicitation by agents, solicitors or brokers, so that WAC 284-30-610 will be applicable to such solicitations, the insurer shall file with the commissioner copies of the pertinent group policy and certificate forms, and shall include a copy of the disclosure statement required by WAC 284-30-610, appropriately completed, which will be)) To fail to file copies of all certificate forms and any other related forms providing coverage in Washington, including trust documents or articles of incorporation with the commissioner at least thirty days prior to use; and

(c) To fail to file with the commissioner a copy of the disclosure statement required by WAC 284-30-610, where the sale of coverage to individuals in this state will be through solicitation by agents, solicitors or brokers. The disclosure statement must be appropriately completed, as it appears when delivered to the Washington individuals who are solicited by the Washington licensees.

((Such material)) The disclosure form must also be filed at least ((twenty days before the)) thirty days prior to any solicitation of coverage ((commences)).

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010.      91-03-073 (Order 90-14), § 284-30-600, filed 1/16/91, effective 4/1/91.      Statutory Authority: RCW 48.02.060 (3)(a).      85-02-018 (Order R 84-7), § 284-30-600, filed 12/27/84.]

(1) It is an unfair method of competition and an unfair practice for:

An ((insurance company)) insurer to permit its appointed licensed agent((, and for));

An insurance agent((,));

Solicitor; or

A broker,

to solicit an individual in the state of Washington to buy or apply for life insurance, annuities, or disability insurance coverage when ((such)) the coverage is provided ((pursuant to)) under the terms of a group ((insurance)) policy delivered to an association or organization (or to a trustee designated by ((such)) the association or organization), as policyholder, outside this state, ((if obtaining such coverage or continuing it is dependent upon the covered individual being a member of or in some way affiliated with such association or organization (other than as an employee, or a dependent of an employee, thereof),)) unless the following steps are taken:

(a) An accurately completed disclosure statement, substantially in the form set forth in subsection (2) of this section, must be ((signed by the soliciting licensee, and delivered to and)) brought to the attention of the individual being solicited before the application for coverage is completed and signed. The disclosure form must be signed by both the soliciting licensee and the individual being solicited and it must be given to the individual.

(b) ((The signed original disclosure statement must be left with such individual.

(c))) A copy of the completed disclosure statement must be ((signed by such individual to acknowledge its receipt, and be)) submitted by the soliciting licensee, with the application for coverage, to the ((insurance company)) insurer providing the coverage.

(((d) The insurance company)) (c) The insurer must confirm the accuracy of the form's contents, and retain ((such)) the copy for not less than three years from the date the coverage commences or from the date received, whichever is later.

(2) Disclosure statement form: (Type size to be no less than ten-point)

[Statutory Authority: RCW 48.02.060 (3)(a) and 48.30.010.      91-03-073 (Order 90-14), § 284-30-610, filed 1/16/91, effective 4/1/91.]

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