Insurance Circular Letter No. 6 (2023)

July 17, 2023


All Insurers Authorized to Write Life Insurance Policies and Annuity Contracts in New York State


Unfair and Unlawful Discrimination in the Sale of Life Insurance and Annuities in the Individual Market and Certain Group Markets

STATUTORY REFERENCES: N.Y. Insurance Law §§ 2606(a)(1), 3201, and 4224(a)(1)

I. Purpose and Background

The life insurance marketplace has changed significantly over the past two decades. The content and complexity of life insurance and annuity contract products are constantly evolving as insurance companies continue to innovate. Over the last decade in particular, there have been a number of innovations to both life insurance and annuity contract products resulting in the availability of a wider variety of products with a large number of optional features and benefits.

Several insurers have developed multiple versions of products within a type of insurance (e.g., multiple versions of a variable annuity contract or universal life insurance policy), the terms and conditions of which vary depending upon which insurance producer sells the product to a consumer in the individual market. For example, some insurers have developed a different version of a product or have created additional features at the request of a particular producer solely to be offered to that producer’s clients. In other instances, producers have developed products that they then ask an insurer to offer exclusively through that producer. Sometimes there are differences in compensation between producers that sell the different versions and in other cases there is little or no difference in compensation. Some insurers also have offered different versions of a product through different producers as a marketing strategy. Certain insurers refer to these practices as “offering different or proprietary products” while others refer to it as “offering different versions or share classes of the same product” (collectively referred to herein as “versions” or “different versions”).

The different versions are sold to consumers with the same expectation of life and with identical needs, goals, or personal or financial circumstances, resulting in similarly-situated consumers receiving different terms, conditions, benefits, fees, or premiums for the same policies or contracts in the individual market. Consumers have no way of knowing that there are other versions of the product – versions that may be more suitable for them – that are offered and sold to other consumers with identical needs, goals, or circumstances and that may be cheaper. These sales practices result in unfair and unlawful discrimination among similarly-situated individuals. Not only are consumers unaware of the other versions of the product offered by the insurer, but also many producers are similarly unaware. The Department believes that these practices have the potential to negatively impact small businesses in New York, such as independent or solo insurance producers or small insurance producer entities, because such producers or producer entities may not be able to attract clients or may lose clients to other producers who are offering more favorable versions of the product from the same insurer. Additionally, the Department believes that these practices have the potential to disproportionately disadvantage low-income consumers, consumers of color and consumers living upstate, who may not have access to the producers who offer the more favorable versions of a particular product, or if new products and additional features are not consistently available on a non-discriminatory basis to all similarly- situated consumers.

The purpose of this circular letter is to remind insurers authorized to write insurance policies and annuity contracts in New York State of their obligations under the Insurance Law pertaining to unfair discrimination in the sale of life insurance policies and annuity contracts and to identify certain sales practices that are unlawfully discriminatory.

II. Discussion

  1. Prohibition of Unfair and Unlawful Discrimination

    Insurance Law § 2606(a)(1) in relevant part prohibits an insurer from making, because of race, color, or national origin, any distinction or discrimination between persons as to the premiums or rates charged for insurance policies or in any other manner whatever. Insurance Law § 4224(a)(l) prohibits insurers from making or permitting any unfair discrimination between individuals of the same class and of equal expectation of life in the amount or payment or return of premiums, or rates charged for life insurance policies or annuity contracts, or in the dividends or other benefits, or in any of the terms and conditions of the policies or contracts.

    In 1955, the former New York Insurance Department (“Insurance Department”) issued Circular Letter No. 1, which states that Insurance Law § 4224 (formerly § 209) “imposes a responsibility on the insurer to justify any systems of groupings or rate classifications as well as the results flowing therefrom as being reasonable, equitable and non-discriminatory.” Accordingly, all similarly-situated consumers must be treated alike when creating classes.

    On December 13, 2000, the Office of General Counsel of the former Insurance Department issued Opinion No. 00-12-05 (“2000 Opinion”) in response to an inquiry regarding whether a life insurer must use the same type of underwriting and the same terms and conditions pertaining to its life products throughout its individual life portfolio. The 2000 Opinion stated in relevant part that:

    A life insurer is free to set its own appropriate underwriting standards, including type of underwriting, i.e., regular (full) underwriting, simplified underwriting or guarantee issue, which may or may not include different underwriting for different products, without violating N.Y. Ins. Law § 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. Use of different terms and conditions regarding different policies is not prohibited provided such terms and conditions are consistent with regard to a particular policy and not contrary to law.

    The 2000 Opinion also stated that upon issuance of the opinion, compliance with Insurance Law § 4224(a)(1) would be reviewed in connection with the market conduct examination process rather than the product approval process.

    Subsequent to the 2000 Opinion, the former Insurance Department posted guidance on its website (the “Guidance”), which stated that if an insurer offers two identical products, with the only difference being the amount of premium charged, such insurer must have appropriate actuarial justification for the different premiums, such as differences in insurance agent compensation or other expenses.

    The insurance industry is misreading the 2000 Opinion and the Guidance. It appears that some insurers have misconstrued the statement in the 2000 Opinion that “[u]se of different terms and conditions regarding different policies is not prohibited provided such terms and conditions are consistent with regard to a particular policy and not contrary to law.” Some insurers have viewed the reference to “different policies” to mean that a policy is different if the insurer simply uses a different form number on an alternate version of the policy or contract or by using a different application, set of data pages, or variable material for the same policy or contract. Such ministerial changes do not create “different policies” that then justify similarly-situated consumers being put into separate classes. A class distinction should always be reasonable, equitable, non- discriminatory, and based on sound actuarial principles.

    Insurers also have misread the Guidance to mean that all differences in insurance producer compensation would constitute appropriate actuarial justification for the purpose of creating class distinctions. It does not. The Department has approved through the Insurance Law § 3201 policy form approval process different policy forms for the same insurance product and has permitted insurers to deviate from the insurer’s regular individual underwriting rules, in certain markets or through certain sales channels, such as the fee-based advisor market and the direct sales market, where insurers have demonstrated a sound actuarial basis for treating consumers in these markets as a different class. For example, there may be significant overall administrative, acquisition, and other expense savings due to the nature of the market, and the insurer is passing that savings on to the consumers through the terms and conditions of the life insurance policy or annuity contract. However, within each market or channel, there can be no unfair discrimination between individuals of the same class and of equal expectation of life, in the amount of interest being credited, the amount or payment or return of premium, or rates charges, or dividends or other benefits or in any of the terms and conditions of the policy or contract.

    Moreover, the Department has not found adequate actuarial justification to support treating similarly-situated life insurance and annuity consumers as separate classes solely due to differing levels of compensation paid to producers. Whether an insurer pays its insurance producers varying amounts of compensation is a matter of contract between the producers and the insurer; the amount of the compensation paid to a producer should not vary the ultimate premium or fees charged or terms, conditions, or benefits provided to a consumer. It is a violation of Insurance Law § 4224(a)(1) to charge different premiums or fees for identical policies or contracts or to sell different versions of a product with different rights, benefits, or fees based solely upon the level of compensation paid to a producer.

    In addition, the Department has seen increased use of the group product structure to sell what is essentially individual insurance, such as life insurance sold to an individual through a bank or credit card issuer. In applying Insurance Law § 4224(a)(1) to group insurance, the Department often has recognized each group as a separate class. However, some insurance programs have features of both individual and group insurance and are more in the nature of individual coverage with the group label being applied mainly for the purpose of marketing and sales enhancement. Accordingly, the Department will apply the guidance in this circular letter to situations in which individual coverage is marketed through a group format, including any life insurance or annuity contracts sold through groups defined in Insurance Law §§ 4216(b)(13) and (14) and 4238(b)(6) and (10). These groups are unique in that the consumer’s association or affiliation with the group policyholder is tenuous as compared to a traditional group, such as an employer or labor union, and, like individual insurance, the cost of insurance is paid primarily, if not entirely, by the consumer.

    Simultaneously with the posting of this circular letter, the Department is posting a guidance note identifying the previously recognized distinctions as mentioned above. Actuarial justification supporting other recognized distinctions will be reviewed on a case-by-case basis and the Department may update the guidance note from time-to-time. The guidance note is considered part of this circular letter for purposes of the Insurance Circular Letter No. 6 (2004) certified filing process and should be consulted for further detail on policy form filing procedures.

    The Department had discussed with industry the use of a disclosure document comparing the different versions of a product as a means of satisfying Insurance Law § 4224(a)(1). However, the use of disclosure documents would not address unfair and unlawful discrimination between individuals of the same class and of equal expectation of life. Different versions would continue to be available only through certain producers and, since not all consumers have access to those producers, they ultimately would also not have access to those different versions of the products.

  2. Compliance Review

    In light of the foregoing, the Department finds that a more expansive inquiry is warranted both at the time of policy form approval and during market conduct examinations. The focus of the Department’s inquiry will be to ensure that individuals applying for life insurance and annuity contracts are treated in a fair and non-discriminatory manner. Any new life insurance and annuity policy form filings made after the date of this circular letter should adhere to the guidance in this circular letter. The Department will inquire about compliance with Insurance Law §§ 2606(a)(1) and 4224(a)(1) for the new policy and contract forms as part of the approval process.

    Insurers are directed to review their current portfolios of products in light of this circular letter and take steps, as needed, to comply with Insurance Law § 4224(a)(1) and the guidance in this circular letter. The Department expects to examine portfolios of existing products for compliance with §§ 2606(a)(1) and 4224(a)(1) during regular and targeted market conduct examinations beginning in 2025.

  3. Conclusion

    Life insurance and annuity contract products sold in the individual market as well as certain group markets discussed above must be available generally to all consumers with similar needs, goals, or circumstances and expectation of life. Insurers may create separate classes and sell different versions of a product to those classes if the insurer can demonstrate a distinction that is reasonable, equitable, non-discriminatory, and based on sound actuarial principles.

    Insurers should be prepared to demonstrate during the policy form approval process and during market conduct examinations that the use and sales of the life insurance policies and annuity contracts comply with Insurance Law §§ 2606(a)(1) and 4224(a)(1).

Please direct any questions regarding this circular letter by email to [email protected]


Very truly yours,


Mona Bhalla
Deputy Superintendent, Life Bureau