Insurers cannot totally rely on the state approval process to be sure their forms for health and all other products comply with state law.

State insurance departments have been and are relying on insurers to do their homework and take responsibility for being in compliance with the laws of the state in which the policy form is issued.

This requires insurance company compliance personnel to have a thorough knowledge of state insurance laws, regulations, rules and guidelines. Following are some pointers to keep in mind when performing this function.

… The policy form filing and approval process is quite complicated and very state specific.

Many states have special certification requirements and special transmittal forms. Some even require special language in the transmittal letter, such as, for Idaho, "To the best of my knowledge and belief, this submission complies with the laws and regulations of the state of Idaho."

• An insurance department may stamp a form "FILED" or "APPROVED" and then revisit it at a later time and disapprove that same form for cause.

For example, Utah will stamp a filing "FILED subject to review" and, at a later time, review the forms and find certain elements unacceptable. The company must then change the form for all new issues and for all existing policyholders to bring it into compliance with Utah’s requirements.

Another example of revocation of approval is the recent product innovation called an equity indexed annuity. Several states approved this type of policy form and later withdrew their approval. They subsequently developed guidelines for approval.

• Many states have a "deemer statute" that allows a company to deem a filed policy form approved if the insurance department does not disapprove it within a certain span of time, often 30 to 60 days.

However, the states do not encourage the use of the deemer, and there is an inherent danger in its use. The insurance department, upon receipt of a consumer complaint or for any other reason, has the right to review or re-review the filing at any time. During this process, the policy form may be found out to be out of compliance and not in the best interest of the consumer. In this case, the department may: issue a cease and desist order; impose a fine; require that all policies already in force and new issues be changed to bring it into compliance; or do all of the above.

Some states have a "file by certification" of "file and use" category.

Here, the insurer files a certification of compliance, along with the form, and the department gives the filing little or no review before the product can be sold in the state. Kentucky, Texas and New Jersey are three examples.

In this arrangement, the department relies on the company to make a good faith effort to become aware of, and comply with, all the codes, rules and regulations of the state. All the certifications clearly state that the department may review the policy form at any time, and for any reason, and that it may take the kinds of action described above regarding the deemer.

• Still other states have "exemption statutes" stating that certain policy forms do not have to be filed. Instead, companies need only file with the state, annually, a list of forms it uses.

Usually, exemption statutes only apply to very simple products that do not have the complications of excess interest credits, flexible premiums, current cost of insurance rates, and current expense charges and interest rates. (Colorado is the exception; it does not even require the list but it does say it will rely on the periodic market conduct examinations of its insurance department to be sure a company’s products are in compliance with Colorado’s law.)

However, these states still reserve the right to review the policy form at any time and for any reason and may disallow the issuance of the form and/or require changes to enforce policies.

With regard to health insurance, exemption statutes, certification filings and file and use privileges do not apply to long-term care and Medicare supplement insurance.

• Often the review of an approved or deemed form, or one that was not required to be filed, is instigated by a consumer complaint.

Therefore, claims practices of an insurer which may result in the filing of a consumer complaint can result in action being taken with regard to existing policy form language.

• New legislation, particularly in the case of health insurance, may have a direct effect on previously approved policy forms.

For life insurance and annuities, the policies already issued may remain unchanged, but policies issued after a specified date will have to include the new requirements. This results in new product development and another round of form filings.

For health insurance, the new requirements often affect all policies "issued or renewed" after a specified date. This means policies already issued must be endorsed or amended to include the new requirements. Again, a new round of product development and form filings will result.

In the health insurance arena, an added complication may occur on the claims side. Specifically, if a benefit was denied and if the new legislation mandated that benefit to be effective for an insured before the claim was made, the insurer must go back and pay that claim.

As you can see, insurers need to maintain constant vigilance and monitoring to be sure their products remain in compliance with state laws and regulations. They must do this even though many years may have passed since the product was originally "approved". This is not an easy task.