The Rhode Island Department of Business Regulation and Office of the Health Insurance Commissioner recently proposed new regulations (the “Proposed Regulations”) regarding the issuance of insurance policies to Rhode Island trusts and associations. If promulgated, the Proposed Regulations could have a significant impact on insurers and brokers that issue or renew insurance policies to trusts and associations in Rhode Island, as well as the trustees responsible for maintaining such trusts.
Rhode Island has long served as a leading jurisdiction for group insurance policies issued to trusts and associations. This is likely due to the fact that Rhode Island laws and regulations did not previously restrict the issuance of policies to fictitious groups (i.e., groups formed for the sole purpose of purchasing insurance).
In 2009, Rhode Island took steps to increase regulation of group life insurance. Under R.I. Gen. Laws § 27-4.8-1, group life insurance policies may only be issued to employee groups, creditor groups, labor unions, associations and credit unions. R.I. Gen. Laws § 27-4.8-2 also grants the commissioner authority to approve issuance of life insurance policies to other groups not falling within those expressly authorized by R.I. Gen. Laws § 27-4.8-1 based upon a finding that the issuance of such a policy will result in economies of acquisition or administration, that such issuance is not contrary to the best interest of the public, and that the benefits provided are reasonable in relation to the premiums charged.
The Proposed Regulations are a further effort to regulate group insurance products issued to Rhode Island trusts and associations. The Proposed Regulations were issued in response to consumer complaints that regulators in other jurisdictions where certificate holders reside have claimed that they do not have regulatory authority over group policies issued to Rhode Island trusts and associations. The Proposed Regulations are designed to “protect the public from a regulatory vacuum by ensuring that [a group insurance policy] issued or renewed in Rhode Island through a trust or association is adequately regulated.”
The Proposed Regulations attempt to extend extra-territorial jurisdiction over policies issued to Rhode Island trusts and associations by requiring that such policies (i) meet the laws of all states where groups are located or an individual insured is located, and (ii) include a provision extending jurisdiction to the regulatory agencies and courts of such jurisdictions. Although the Proposed Regulations do not specify how these requirements will be implemented or enforced, the additional regulatory burdens imposed could significantly impact Rhode Island’s position as the jurisdiction of choice for group policies issued to trusts and associations and could cause insurers and brokers with policies issued to Rhode Island trusts and associations to move the policies to other jurisdictions.
The Proposed Regulations would apply to policies delivered, issued for delivery, or renewed in Rhode Island after June 1, 2011, but insurers may request a waiver from the requirements of up to one year based upon a showing of good cause.