New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following opinion on April 16, 2002, representing the position of the New York State Insurance Department.

RE: Guidelines for the Writing of Individual Policies in the Payroll Deduction Market.

Question Presented:

Does the Insurance Law require that in order to write individual policies in the payroll deduction market there must have been group term life insurance already in effect for cases over twenty-five lives?

Conclusion:

No. Nothing in the Insurance Law specifically requires that in order to write individual policies in the payroll deduction market there must have been group term life insurance already in effect for cases over twenty-five lives.

Facts:

The inquirer stated that the Product Outline on Individual Product Distinction and Market Distinction, which was previously posted on the Department’s website, contained the Department’s guidelines for the writing of individual policies in the payroll deduction market. These guidelines provided that in order to write individual policies in the payroll deduction market, there must have been group term life insurance already in effect for cases over twenty-five lives underwritten by either the insurer wishing to issue the payroll deduction product or by another insurer. As a result of the Office of General Counsel Opinion number 00-12-05 concerning N.Y. Ins. Law § 4224(a)(1) (McKinney 2000), this Product Outline was removed from the website. The inquirer would like to know whether the opinion also had the effect of eliminating the requirement that the inquirer described.

Analysis:

The Product Outline on Individual Product Distinction and Market Distinction, which no longer exists, memorialized the Department’s prior policy that an insurer must use the same type of underwriting throughout its individual term life portfolio and individual permanent life portfolio of products, unless the product was approved for sale in one of the six distinct markets, one of which was employer-employee payroll deduction, that were recognized by the Department. The Outline also included specific requirements that must be met in order to write individual policies in the employer-employee payroll deduction market.

Insurers were required to meet these underwriting requirements as a condition of approval of policy forms submitted under N.Y. Ins. Law § 3201 (McKinney 2000). The basis for this requirement was N.Y. Ins. Law § 4224(a)(1) (McKinney 2000), which prohibits a life insurance company from unfairly discriminating between individuals of the same class and of equal expectation of life in the terms and conditions of life insurance and annuity contracts.

On December 13, 2000, the Department issued the Office of General Counsel Opinion number 00-12-05 which removed the guidelines in the Product Outline from the N.Y. Ins. Law § 3201 prior approval process. The opinion concluded that "a life insurer is free to set its own appropriate underwriting standards, including the type of underwriting, i.e., regular (full) underwriting, simplified underwriting or guaranteed issue, which may or may not include different underwriting for different products, without violating section 4224(a)(1), as long as such underwriting standards have a factual and rational basis, are grounded in generally accepted insurance and actuarial principles, and are not contrary to law."

The requirement that the inquirer described was based on prior interpretations of section 4224(a)(1). However, nothing in this section or any other provision of the Insurance Law specifically requires that in order to write individual policies in the payroll deduction market there must have been group term life insurance already in effect for cases over twenty-five lives. Accordingly, since this requirement was based on prior interpretations of section 4224, it is no longer applicable.

For further information, you may contact Attorney Pascale Joasil at the New York City office.