The Office of General Counsel issued the following opinion on April 11, 2008, representing the position of the New York Insurance Department.
Re: Medicare Supplement Policies: Insurance Company and its Agents’ Use of Ratings Reports in their Sales Presentations
Does use of a Ratings Report (the “Report”) by insurance agents of ABC Insurance Company (“ABCIC”) during the sales process to convince insureds to replace their DEF Insurance Company (“DEFIC”) Medicare supplement policies with ABCIC policies constitute advertising material that must be filed with the Insurance Department prior to use pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 215.5(d) (2005) (Regulation 34)?
Yes. Use of the Ratings Report during the sales process to compare and convince insureds to replace their DEFIC Medicare supplement policies with ABCIC Medicare supplement policies constitutes advertising material that must be provided to the Superintendent pursuant to 11 NYCRR § 215.5(d).
The Department’s Consumer Services Bureau is investigating the sales activities of ABCIC and its agents, with regard to Medicare supplement policies. Based on information gathered, the Department has found that as part of their marketing materials, several of ABCIC’s agents show the Report to their customers during their sales presentations as a way of comparing ABCIC to DEFIC, in an effort to convince customers that ABCIC is a better rated company than DEFIC.
The Report gave ABCIC a B+ rating, whereas DEFIC received a D+ rating. During Examination under Oath at the Department, some ABCIC agents testified that they keep the Report in plastic and show it to customers. In one instance, an agent testified that the report was used whenever “necessary, appropriate … to combat somebody who has used them against me.” ABCIC is fully aware of this practice by its agents, but has taken no steps to prevent the agents from using the Report. In fact, several replacement forms completed by ABCIC agents gave the reason for replacing a DEFIC policy with an ABCIC policy as “wants better rated company.”
The Department has advised ABCIC that use of the Report constitutes advertising within the meaning of Regulation 34. Pursuant to 11 NYCRR § 215.5(d), an insurer must provide to the Department copies of any Medicare supplement insurance advertising materials prior to using them. The Department has advised ABCIC that its agents must cease using the Report in their sales transactions, and has asked the ABCIC to submit to the Department a corrective plan aimed at preventing further use of such advertising materials.
In its written response to the Department, ABCIC argued that references to the Report by its “agents during sales presentations are tangential at best, and are made on a sporadic basis absent company instruction.” Further, ABCIC argued that the “ratings are separate, independent sources of information not incorporated into the company’s advertising materials and most importantly, not reproduced for customers. As a result, it is not inappropriate for agents to refer to … ratings” reports.
ABCIC also argued that the Department’s application of Insurance Law §§ 2122 and 2123 (McKinney 2006), as well as Regulation 34, to the Report is misguided because “sales agents are limited to using company-created materials approved by the Department as their entire universe of resources during sales presentations.” Here, ABCIC argues, its agents use information that is publicly available, not ABCIC-created.
In view of the Department’s ongoing investigation, this opinion will only address the specific issue of the use by ABCIC agents of the Report during the sales process for Medicare supplement policies.
The general legislative purpose behind the advertising provisions in Insurance Law §§ 1313, 2122, 21231 and Regulation 342 is to protect the public from unfair competition, misrepresentations, or false statements, including those that relate to the financial condition of an insurer. 11 NYCRR § 215.1 is relevant to the issue of advertising and accident and health insurance. That section reads as follows:
The purpose of this Part is to assure truthful and adequate disclosure of all material and relevant information in the advertising of accident and health insurance. This purpose is intended to be accomplished by the establishment of, and adherence to, certain minimum standards of conduct in the advertising of accident and health insurance in a manner which prevents unfair competition among insurers and is conducive to the accurate presentation and description to the insurance buying public of policies of such insurance offered through various advertising media.
11 NYCRR § 215.3(a)(1) defines advertisement to include:
(1) printed and published material, audio-visual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio scripts, TV scripts, billboards and similar displays;
(2) descriptive literature and sales aids of all kinds issued by an insurer, agent or broker for presentation to members of the insurance buying public, including but not limited to circulars, leaflets, booklets, depictions, illustrations and form letters; and
(3) prepared sales talks, presentations and material for use by agents, brokers and solicitors.
Use of the Ratings Report by ABCIC’s agents constitutes advertising that comes within the scope of 11 NYCRR § 215.3(a), especially (a)(2) and (3), as a “sales aid … issued by an insurer, agent or broker for presentation to members of the insurance buying public, including but not limited to circulars, leaflets, booklets, depictions, illustrations and form letters; and prepared sales talks, presentations and material for use by agents, brokers and solicitors.”
ABCIC does not dispute that several of its agents have been using the Report in their sales presentations. In fact, the Department’s investigation has found that, in many instances, such presentations have convinced many DEFIC policyholders to replace their existing DEFIC Medicare supplement policies with ABCIC Medicare supplement policies.
11 NYCRR § 215.5(d) requires every insurer providing Medicare supplement insurance to provide to the Department, prior to use, any advertisement involving Medicare supplement insurance. That section reads, in pertinent part as follows:
(d) Every insurer providing Medicare supplement insurance … shall provide, prior to its use, a copy of any advertisement for a Medicare supplement insurance policy intended for use in this State whether through written, radio, or television medium to the superintendent. Such advertisement shall comply with all applicable regulations and laws of this State. (Emphasis added.)
In its written response to the Department, ABCIC argued that “any references to … Ratings by the company’s sales agents during sales presentations are tangential at best, and are made on a sporadic basis absent company instruction.” However, 11 NYCRR § 215.2(b) requires insurers to establish and maintain a system of control over the content, form and method of dissemination of all advertisements of its policies. Moreover, ABCIC is well aware that its agents have been using the report in their sales presentations, but has taken no steps to prohibit such use. Thus, ABCIC stands in violation of 11 NYCRR § 215.2(b).
In addition, the use of a ratings report, which generally relates to the financial condition of insurers, as an advertising/sales tool may be misleading to the public if such advertising does not also conform to the provisions of Insurance Law §§ 1313, 2122 and 2123.
In short, advertising material used by ABCIC that relates to the sale of Medicare supplement policies, including the Report, must conform to the applicable sections of the Insurance Law and regulations, and must be provided to the Department prior to usage.
For further information, you may contact Supervising Attorney D. Monica Marsh at the New York City office.
1 Insurance Law § 1313(a)(1), styled Contents of Advertisements and Other Public Announcements Concerning Financial Condition of Insurers, provides as follows:
(a)(1) Except as provided in subsection (g) hereof or permitted by regulation, every advertisement or other public announcement published, issued or distributed in this state by any domestic or foreign insurer, a subsidiary thereof, a holding company or controlled person as defined by section one thousand five hundred one of this chapter, or by any agent of any of the foregoing, purporting to make known the insurer’s separate financial condition, shall show the amount of its admitted assets, liabilities and reserves required or permitted by law, and its surplus to policyholders, and shall correspond with its last verified statement (annual or quarterly, at its option) made to the superintendent. Such surplus to policyholders shall show the amount of the insurer’s paid up capital stock, if any.
Insurance Law § 2123 (a)(1), styled Misrepresentations, misleading statements and incomplete comparisons, provides in pertinent part as follows:
(a)(1) No agent or representative of any insurer … authorized to transact life, accident or health insurance … business in this state … shall issue or circulate or cause or permit to be issued or circulated, any illustration, circular, statement or memorandum misrepresenting the terms, benefits or advantages of any policy or contract of life, accident or health insurance … contract, delivered or issued for delivery or to be delivered or issued for delivery, in this state, or shall make any misleading estimate as to the dividends or share of surplus or additional amounts to be received in the future on such policy or contract, or shall make any false or misleading statement as to the dividends or share of surplus or additional amounts previously paid by any such insurer … on similar policies or contracts, or shall make any misleading representation, or any misrepresentation, as to the financial condition of any such insurer … or as to the legal reserve system upon which such insurer … operates.
Insurance Law § 2122 (a)(1), styled Advertising by Insurance Agents and Brokers, provides that:
(a)(1) No insurance agent or insurance broker shall make or issue in this state any advertisement, sign, pamphlet, circular, card or other public announcement purporting to make known the financial condition of any insurer, unless the same shall conform to the requirements of section one thousand three hundred thirteen of this chapter.
2 See also 11 NYCRR Pt. 219 (Regulation 34-A), which is applicable to life insurance and annuity contracts, and sets forth similar requirements.