Preproposal statement of inquiry was filed as WSR 04-13-153.
Title of Rule and Other Identifying Information: Corporate-owned life insurance in Washington state.
Hearing Location(s): Insurance Commissioner's Office, Room TR-120, 5000 Capitol Boulevard, Olympia, WA 98504, on September 26, 2007, at 2:30 p.m.
Date of Intended Adoption: October 1, 2007.
Submit Written Comments to: Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0258, e-mail Kacys@oic.wa.gov, fax (360) 586-3109, by September 25, 2007.
Assistance for Persons with Disabilities: Contact Lorie Villaflores by September 25, 2007, TTY (360) 586-0241 or (360) 725-7087.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: ESB 5196 was enacted during the 2005 legislative session. This law directed the commissioner to adopt rules to implement RCW 48.18.010, 48.18.030, 48.18.060, 48.18.580, and 48.18.583. These proposed rules will require that an employee be a key person and the employer must obtain and keep evidence that the employer has an "insurable interest" in the life of the employee.
Reasons Supporting Proposal: In the past, despite the existence of a strict insurable interest requirement for group life insurance, corporations have purchased policies on employees in whom there exists no clear insurable interest. In the past, despite the existence of a strict insurable interest requirement for group life insurance, corporations have purchased policies on employees in whom there exists no clear insurable interest. The purpose of this rule making is to provide standards that insurers must meet in order to ensure that insured employees are, in fact, key persons and the employer has an "insurable interest" in the lives of the insured employees.
Statutory Authority for Adoption: RCW 48.02.060 and 48.18.586.
Statute Being Implemented: RCW 48.18.010, 48.10.030 [48.18.030], 48.18.060, 48.18.580, and 48.18.583.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Mike Kreidler, insurance commissioner, governmental.
Name of Agency Personnel Responsible for Drafting: Melodie Bankers, P.O. Box 40258, Olympia, WA 98504-0255, (360) 725-7039; Implementation: Beth Berendt, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7117; and Enforcement: Carol Sureau, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7050.
No small business economic impact statement has been prepared under chapter 19.85 RCW. This proposed rule will have negligible or minor impact on small businesses regulated by the office of insurance commissioner. The proposed rule is required by RCW 48.18.586.
A cost-benefit analysis is not required under RCW 34.05.328. This proposed rule is an interpretive rule as defined by RCW 34.05.328(5). The proposed rule is required by RCW 48.18.586.
August 22, 2007
WAC 284-23-580 Insurer must obtain and keep evidence that insured is a key person -- Definition of "key person." (1) If a business entity seeks to be the owner and beneficiary of a contract of life insurance on an employee, the insurer must obtain and keep evidence that the business entity had an "insurable interest" in the life of the insured as required by RCW 48.18.030(3) and was a "key person" at the time the contract was made.
(2) An insurer issuing employer-owned key person life insurance to a business entity shall establish and apply appropriate underwriting guidelines to ensure that the employees or other persons on whose lives key person life insurance policies are written are actually key persons.
(3) An insurer issuing employer-owned life insurance policies or certificates must keep evidence that it has complied with applicable legal requirements, including but not limited to the requirement that the insured has applied for or consented to the contract in writing. These requirements include RCW 48.18.030, 48.18.060, and 48.18.580.
(4) If a contract of insurance is entered into pursuant to an exchange under Section 1035 of the Internal Revenue Code, an insurer is not required to obtain a new consent by the insured employee (as required at RCW 48.18.580(2)) only if the insurer to be replaced provides the replacing insurer with a copy of the original signed consent.
(5) The term "key person" means a "highly compensated individual" where, during the year the contract was made, the employee:
(a) Was one of the five highest paid officers of the employer;
(b) Was a shareholder who owned more than ten percent in value of the stock of the employer;
(c) Was among the highest paid thirty-five percent of all employees; or
(d) Had compensation from the employer in excess of ninety-five thousand dollars (or greater amount set forth in the Internal Revenue Code) during the year the contract was made or during the immediately preceding calendar year.