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| Montana Administrative Register Notice 6-171 | No. 2 01/31/2008 | |
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BEFORE THE STATE AUDITOR AND COMMISSIONER OF INSURANCE OF THE STATE OF MONTANA �
� TO: All Concerned Persons � 1. On November 8, 2007, the State Auditor and Commissioner of Insurance published MAR Notice No. 6-171 regarding the public hearing on the proposed adoption of the above-stated rules at page 1718 of the 2007 Montana Administrative Register, issue number 21. � 2. On November 29, 2007, the State Auditor and Commissioner of Insurance held a public hearing to consider the proposed adoption of the above-stated rules. Comments were heard at the hearing, and written comments were received before the comment deadline. � 3. The State Auditor and Commissioner of Insurance has adopted NEW RULE I (ARM 6.6.1001), NEW RULE III (ARM 6.6.1003), NEW RULE V (ARM 6.6.1006), and NEW RULE IX (ARM 6.6.1014) exactly as proposed. � 4. The department is adopting the following rules as proposed with the following changes. New matter is underlined. Matter to be deleted is interlined. � NEW RULE II (ARM 6.6.1002) SCOPE (1) remains as proposed. (a) all life insurance policy forms delivered or issued for delivery, marketed, (b) through (d) remain as proposed. � NEW RULE IV (ARM 6.6.1004) DEFINITIONS For the purposes of (1)
(3) remains as proposed but is renumbered (2).
(5) through (8) remain as proposed but are renumbered (4) through (7).
(12) and (13) remain as proposed but are renumbered (11) and (12). � NEW RULE VI (ARM 6.6.1008) REPORTING BY ISSUER (1) � NEW RULE VII (ARM 6.6.1010) FUNERAL INSURANCE POLICY FORMS (1) through (2)(b) remain as proposed. (c) � NEW RULE VIII (ARM 6.6.1012) BENEFICIARY DESIGNATION (1) Funeral insurance policy forms must clearly and conspicuously: (a) allow the insured, or applicant, if the applicant has an insurable interest in the life of the insured, to designate a primary beneficiary and an excess beneficiary (b) state that funeral insurance proceeds may be subject to recovery by Medicaid pursuant to 33-20-1501, MCA; and
(c) subject to (1)(b), provide that if the primary beneficiary is a funeral director, mortician, mortuary, or undertaker: (i) any funeral insurance proceeds that exceed the cost of funeral goods and services provided will be paid (ii) under no circumstance may any funeral insurance proceeds be paid to the primary beneficiary that exceed the cost of funeral goods and services provided.
NEW RULE X (ARM 6.6.1016) UNINTENTIONAL LAPSE (1) remains as proposed. (a) No funeral insurance policy or certificate shall be issued until the issuer has received from the applicant either a written designation of at least one individual who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium, or a written waiver dated and signed by the applicant electing not to designate an additional (i) "Protection against unintended lapse." I understand that I have the right to designate at least one individual other than myself to receive notice of lapse, or termination of this funeral insurance policy or certificate for nonpayment of premium. I understand that notice will not be given until 30 days after a premium is due and unpaid. I do (b) remains as proposed. � NEW RULE XI (ARM 6.6.1018) REQUIRED DISCLOSURES (1) In addition to any disclosures required for life insurance by statute or rule, the funeral insurance issuer shall develop clear and conspicuous written disclosures (a) (b) remains as proposed. (c) the nature of the relationship among the soliciting producer, the provider of the funeral goods and services, and any other person (d) whether (e) remains as proposed. (f) the relationship of the funeral insurance to the funding of the preneed funeral arrangement and the nature and existence of any guarantees in relation to the preneed funeral arrangement; (g) (g) remains as proposed but is renumbered (h). (i) remains as proposed. (ii) penalties to be incurred by the (iii) remains as proposed. (h) and (i) remain as proposed but are renumbered (i) and (j).
(l) remains as proposed but is renumbered (m).
(n) remains as proposed but is renumbered (o). (2) through (4) remain as proposed. � � NEW RULE XII (ARM 6.6.1020) PROHIBITIONS (1) The sale of funeral insurance may not be conditioned on: (a)
(c) remains as proposed but is renumbered (b). (2)
� 5. The department has thoroughly considered all commentary received. The comments received and the department's responses to each comment follow: � NEW RULE II (ARM 6.6.1002) SCOPE
� COMMENT 1: The American Council of Life Insurers (ACLI) commented that NEW RULE II (ARM 6.6.1002), subsection (1)(a) is too broad because the phrase and concept of "use" appears to require insurers to exercise knowledge and control over how the proceeds are used from every life insurance policy. It further commented that "normal" life insurance, purchased without a specified purpose, but later the proceeds of which are used to pay for funeral expenses, would appear to fall under the rule and be noncompliant. It asked that subsection (1)(a) be amended to read as follows: "(1) These rules shall apply to: (a) all funeral insurance policy forms delivered or issued for delivery, or marketed in this state;" � RESPONSE 1: The department revised the rule to address the concern that the proposed rule was too broad by removing the word "used," but did not accept the suggested language. Insurers will be issuing funeral insurance as a type of life insurance under 33-20-1501, MCA, and will have knowledge and control over the policy forms delivered or issued for delivery, marketed, or designated as intended for use as funeral insurance. � NEW RULE IV (ARM 6.6.1004) DEFINITIONS � COMMENT 2: The Montana Funeral Directors Association (MFDA) commented that the defined term "authorized agent" in proposed NEW RULE IV (ARM 6.6.1004) should be changed to "authorizing agent" to be consistent with 37-19-101, MCA. It also asked that 37-19-101, MCA, be referenced. � RESPONSE 2: The department removed the definition of "authorized agent." The term "authorized agent" was being used to identify who may legally order the final disposition of human remains and the term appeared in the definition of "preneed funeral arrangement." The definition of preneed funeral arrangement was revised to state that an "authorized individual" may make preneed funeral arrangements to be consistent with 37-19-101(32), MCA, and ARM 24.147.302(8). The term "authorized individual" is not defined in either Title 37, chapter 19, MCA, or the administrative rules promulgated by the Board of Funeral Service. � COMMENT 3: The ACLI commented that the definition of "funeral insurance" in NEW RULE IV (ARM 6.6.1004) deviates from and engrafts further requirements on the definition of funeral insurance in 33-20-1501, MCA. It commented that there was no statutory basis supporting the rule that annuity contracts are not funeral insurance. It commented that viatical settlement agreements are not used to fund preneed funeral arrangements. It asked that the rule only contain a reference to 33-20-1501, MCA. � RESPONSE 3: The department does not agree that funeral insurance in 33-20-1501, MCA, includes annuity contracts. Section 33-20-1501, MCA, states that funeral insurance is an insurance policy or certificate and that it is a "type of life insurance" provided for in 33-1-208, MCA. Section 33-1-208, MCA, lists types of life insurance but does not include annuity contracts. � The terms annuity contract and annuity are used in the Montana Insurance Code in Title 33, chapter 20, MCA, but are not specifically defined except in Title 33, chapter 20, part 8, MCA, regarding suitability in annuity transactions. Instead, a definition is found in ARM 6.6.805 in the appendix titled "Buyer's Guide" in the National Association of Insurance Commissioners' Annuity Disclosure Model Regulation (April 1999), which was adopted by reference. The Buyer's Guide broadly defines an annuity contract as an arrangement with an insurance company in which the insurance company makes a series of income payments at regular intervals in return for premium payments that were made. It further states that an annuity contract is usually bought to provide future retirement income and "is neither life insurance nor a health insurance policy." Accordingly, an annuity is not the same as life insurance simply because it can be sold by a life insurance company. See also Estate of Miles, 2000 MT 41, 298 Mont. 312, 994 P.2d 1139 (2000) (Contracts of life insurance and annuity are distinctly different. The sale of a product by a life insurance issuer does not automatically render that product life insurance). � Additionally, general guidance can be found in the Dictionary of Insurance Terms, 4th ed. (2000), which states that an annuity is a "contract sold by insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant), for the lives of two or more persons, or for a specified period of time. The annuitant can never outlive the income from the annuity. While the basic purpose of life insurance is to provide an income for a beneficiary at the death of the insured, the annuity is intended to provide an income for life for the annuitant." � Accordingly, the rule stating that annuity contracts are not funeral insurance does not conflict with or engraft additional requirements on the statutes. Further, this comment demonstrates the need for this rule and clarification regarding the definition of funeral insurance. � COMMENT 4: The ACLI commented that the definition of "funeral insurance" in NEW RULE IV (ARM 6.6.1004) may impair the assignment of existing annuity contracts. � RESPONSE 4: The department revised the rule to avoid impairing the use of existing annuity contracts and to specify that annuity contracts and viatical settlement agreements may not be marketed or designated as intended for use as funeral insurance. � COMMENT 5: The ACLI commented that the definition of "person" in NEW RULE IV (ARM 6.6.1004) is too restrictive in regard to beneficiaries. It asked that the definition either be broadened to include other associations or nonprofit arrangements or that the use of the term in regard to beneficiaries be considered and amended. � RESPONSE 5: The department revised the definition of "person" to specify that "person" means an individual or business entity including a corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity. � COMMENT 6: The MFDA commented that the definition of "preneed funeral arrangement" in Rule IV (ARM 6.6.1004) should be revised to use the term "another person" instead of "authorized agent" because a third party, such as a trustee for a disabled person, who does not meet the proposed definition of authorized agent, may wish to make and fund a preneed funeral agreement. � RESPONSE 6: Consistent with 37-19-101(32), MCA, and ARM 24.147.302(8), the department revised the definition of "preneed funeral arrangement" to provide that an "authorized individual" may make a preneed funeral arrangement on behalf of another individual. The term "authorized individual" is not defined in either Title 37, chapter 19, MCA, or the administrative rules promulgated by the Board of Funeral Service. It is unknown to the department whether a trustee may make a preneed funeral arrangement. This rule does not affect who may make a preneed funeral arrangement. � Additionally, under 33-20-1501(3)(b), MCA, an applicant for funeral insurance on another individual must have an insurable interest in the life of the insured to make beneficiary designations. Insurable interest is governed by 33-15-201, MCA. Accordingly, only trustees with an insurable interest in the life of the insured may select a beneficiary. � NEW RULE V (ARM 6.6.1006) LICENSING � COMMENT 7: The MFDA commented that the proposed rules do not address the insurance continuing education requirements for specialized funeral insurance producers. It stated that specialized funeral insurance producers would be selling a limited product and therefore the insurance continuing education requirements for specialized funeral insurance producers should be either reduced or eliminated. The MFDA requested that proposed NEW RULE V (ARM 6.6.1006) include a new section (6) as follows, "The Commissioner may exempt specialized funeral insurance producers from the minimum continuing education requirement set forth in 33-17-1203, MCA." � RESPONSE 7: The department disagrees. In discussions with representatives of MFDA during the legislative session, department staff advised that the insurance continuing education requirements for life insurance producers in 33-17-1203, MCA, would apply to specialized funeral insurance producers since SB 276 created funeral insurance as a type of life insurance. Due to National Association of Insurance Commissioners (NAIC) uniformity, all life insurance licensees must comply with standardized insurance continuing education requirements. � NEW RULE VI (ARM 6.6.1008) REPORTING BY ISSUER � COMMENT 8: The ACLI commented that NEW RULE VI (ARM 6.6.1008) appears to be unnecessary, but if the rule is adopted, it asked that the "(1)" be stricken.� � RESPONSE 8: The department disagrees that the rule is unnecessary. Although life insurance issuers submit an annual report to the commissioner, establishing funeral insurance as a type of life insurance under 33-20-1501, MCA, makes it necessary for life insurers to separate funeral insurance information to identify funeral insurance volume and to aid the commissioner in monitoring and ensuring compliance with Montana law regarding funeral insurance. � The department revised the rule to clarify that funeral insurance issuers may be required to file a supplement to the annual statement. The "(1)" earmark is required formatting by the Secretary of State's Office. � NEW RULE VIII (ARM 6.6.1012) BENEFICIARY DESIGNATION � COMMENT 9: The ACLI commented that section (1) of NEW RULE VIII (ARM 6.6.1012) is duplicative of NEW RULE VII (ARM 6.6.1010(2)(c)) and asked that section (1) not be adopted. � RESPONSE 9: The department agrees that section (1) of NEW RULE VIII (ARM 6.6.1012) was duplicative. The department revised NEW RULE VII (ARM 6.6.1010) to reference NEW RULE VIII (ARM 6.6.1012). � COMMENT 10: The ACLI commented that section (2) of NEW RULE VIII (ARM 6.6.1012) conflicts with 33-20-1501(6) and 33-20-1502, MCA, which deal with payment of excess funeral insurance proceeds. It also commented that paying excess proceeds to an insured's estate might conflict with other provisions of the Montana Insurance Code, Probate Code, and case law and that it may inadvertently trigger other tax and probate consequences. It asked that section (2) not be adopted. � RESPONSE 10: The department agrees that 33-20-1501(6), MCA, regarding possible recovery by Medicaid of funeral insurance proceeds from beneficiaries should be referenced and has revised NEW RULE VIII (ARM 6.6.1012) to include the same. � The department does not agree that the proposed rule conflicts with 33-20-1502, MCA. Section 33-20-1502, MCA, addresses funeral insurance proceeds that exceed of the cost of the funeral goods and services provided and contemplates that an excess beneficiary will be designated. Specialized funeral insurance producers, who are also funeral directors, morticians, mortuaries, and undertakers, will be selling funeral insurance which may also designate the same funeral director, mortician, mortuary, or undertaker as a beneficiary of the insurance to fund a preneed funeral arrangement made with that same funeral director, mortician, mortuary, or undertaker. This rule protects the public by addressing this conflict of interest and avoiding any potential windfall to the funeral director, mortician, mortuary, or undertaker. Similarly, a Board of Funeral Service administrative rule at ARM 24.147.1504(1)(c) provides that upon revocation of a preneed funeral arrangement, the money to fund it will be paid to the named beneficiaries in the insurance policy. Accordingly, the Legislature, Board of Funeral Service, and department all recognize the possibility of a windfall to the funeral director, mortician, mortuary, or undertaker and seek to protect the public. � The ACLI appears to support rules protecting the public from the possibility of a windfall to the funeral director, mortician, mortuary, or undertaker. The ACLI appears to object to the requirement that excess proceeds be paid to the insured's estate when the primary beneficiary is a funeral director, mortician, mortuary, or undertaker and an excess beneficiary is not designated. While the ACLI states that requiring excess proceeds be paid to the insured's estate in this circumstance may conflict with other statutes and case law and have inadvertent tax consequences, it did not explain or provide any examples. Accordingly, the department revised this rule without the benefit of any specific explanation or example in an attempt to address these generalized concerns. � The revised rule provides that if the primary beneficiary is a funeral director, mortician, mortuary, or undertaker, any funeral insurance proceeds that exceed the cost of the funeral goods and services provided will be paid in accordance with the terms of funeral insurance, such as an excess beneficiary designation or provision regarding a failed beneficiary designation. But, if the primary beneficiary is a funeral director, mortician, mortuary, or undertaker, under no circumstance may any funeral insurance proceeds that exceed the cost of the funeral goods and services provided be paid to the primary beneficiary. If the department learns of a specific conflict with other statutes or case law or a specific tax consequence, it will consider revising the rule. � COMMENT 11: The MFDA commented that section (2) of proposed NEW RULE VIII (ARM 6.6.1012), providing that funeral insurance proceeds that exceed the cost of funeral goods and services provided will be paid to the insured's estate, is misleading because: (1) if the "preneed contract funded by the funeral insurance policy is a �guaranteed price agreement,' all the proceeds of the funeral insurance policy will be paid to the funeral home regardless of the at-need prices of the funeral home," and therefore would not be paid to the insured's estate; and (2) the possible recovery by Medicaid from funeral insurance beneficiaries is not addressed. The MFDA suggested revising section (2) to include a reference to the possibility of recovery by Medicaid of funeral insurance proceeds. � RESPONSE 11: The department disagrees in part. The MFDA appears to assume that the face amount of the funeral insurance policy and/or the funeral insurance policy proceeds will match exactly the dollar amount of a preneed funeral arrangement. Although this is possible, it is not required and will not be true in every case. � A funeral insurance policy with a face amount of $15,000.00 could be purchased to fund a preneed funeral arrangement of $6,000.00 and a funeral director designated as the primary beneficiary. According to a Federal Trade Commission guide titled "Funerals: A Consumer Guide" available on the www.ftc.gov web site in October 2007, a traditional funeral, including casket and vault, costs about $6,000.00, and therefore it is quite possible that the funeral insurance proceeds will exceed the cost of the funeral goods and services provided. � Additionally, the Board of Funeral Service administrative rules at ARM 24.147.302(3) and (6) defining a "guaranteed price agreement" and "nonguaranteed price agreement" indicate that a preneed funeral arrangement need not have a guaranteed price. Further, while a preneed funeral arrangement may contain guaranteed price items (such as the casket price), every item may not have a guaranteed price (such as flowers, obituary notices, and special music and musicians). Accordingly, the cost of the funeral goods and services provided may not be identical to the preneed funeral arrangement. � The department agrees that the rule should reference possible recovery by Medicaid of funeral insurance proceeds. While not accepting the suggested language, the department revised the rule to include a reference to possible recovery of funeral insurance proceeds by Medicaid. � NEW RULE XI (ARM 6.6.1018) REQUIRED DISCLOSURES � COMMENT 12: The ACLI commented that NEW RULE XI (ARM 6.6.1018) appeared to be based in part on the National Association of Insurance Commissioners (NAIC) Life Insurance Disclosure Model Regulation, Section 6, Preneed Funeral Contracts or Prearrangements, but expressed concern that some disclosure requirements in proposed NEW RULE XI (ARM 6.6.1018) deviated or expanded upon the Model Regulation. � RESPONSE 12: NEW RULE XI (ARM 6.6.1018) is based in part on the NAIC Life Insurance Disclosure Model Regulation, Section 6, Preneed Funeral Contracts or Prearrangements (2005). While not verbatim, the rule contains the disclosures in the Model Regulation. � Disclosure statutes and regulations of other states and the requirements of the Montana Insurance Code and associated rules were also considered. To further inform and protect consumers, the department included additional disclosures in substantive areas that are not addressed in the Model Regulation. � COMMENT 13: The ACLI commented that the funeral insurance disclosures required in 33-20-1501(3), MCA, should be added to the disclosures required in NEW RULE XI (ARM 6.6.1018) so that a single list of required disclosures is available for the insurer to consult. � RESPONSE 13: Section 33-20-1501(3), MCA, pertains to the content of funeral insurance policy forms and solicitation materials. The rule lists disclosures to be made by the issuer in a separate form and to be signed by the prospective purchaser. � The rule at subsection (1)(a) repeated 33-20-1501(3)(a). The department agreed that including the information in 33-20-1501(3), MCA, in the disclosures was appropriate and revised the rule to reference 33-20-1501(3), MCA, to avoid repeating the statute. � COMMENT 14: The MFDA commented that several of the disclosures in NEW RULE XI (ARM 6.6.1018) are outside of the knowledge and expertise of the funeral insurance issuer. Further, funeral homes are required by the Board of Funeral Service to make most of these disclosures in preneed funeral agreements. � RESPONSE 14: Disclosure forms are required to be developed by the issuer and submitted to the commissioner for review and approval prior to issuing the same. For any information that cannot be determined until the time of application, section (2) of the rule provides that the life insurance producer or specialized funeral insurance producer will complete the disclosure information specific to that funeral insurance transaction. � While the Board of Funeral Service requires certain disclosures, those disclosures may vary from or exceed the disclosures contemplated by the department. For any disclosures required by both the board and the department, the disclosure form may identify the nature of the information to be disclosed and the life insurance producer or specialized funeral insurance producer may fill in the specific information or provide a detailed reference to where the specific information can be found in the preneed funeral arrangement, and attach a copy of the preneed funeral arrangement.� � COMMENT 15: The ACLI and MFDA commented that subsection (1)(c) of NEW RULE XI (ARM 6.6.1018) regarding disclosures about "any other person that will or may profit from the transaction" includes individuals that are unknowable to the insurer and producer making the rule vague and unenforceable. The MFDA asked that the rule not be adopted. The ACLI suggested that the rule follow the NAIC Life Insurance Disclosure Model Regulation, Section 6, more closely by replacing this phrase with "who will be compensated for the sale of the funeral insurance." � RESPONSE 15: The rule requires disclosures to inform consumers of the conflict of interest when funeral insurance is sold by specialized funeral insurance producers who are also funeral directors, morticians, mortuaries, or undertakers and are entering a preneed funeral arrangement with the consumer. Consumers need this information to make better informed decisions about purchasing funeral insurance. � The Model Regulation has similarly broad disclosure language. In Section 6, paragraph B, the Model Regulation requires a disclosure regarding "the nature of the relationship among the soliciting agent or agents, the provider of the funeral or cemetery merchandise or services, the administrator and any other person." (Emphasis added.) � The department revised the rule to address the concern that the rule was vague by specifying that the disclosures be made in regard to the relationship among the soliciting producer, the provider of the funeral goods and services, and any other individual or entity identified in the preneed funeral arrangement that will or may profit from the transaction. The department did not accept the suggestion to revise the rule by adding language about who will be compensated for the sale of the funeral insurance. Disclosures regarding sales commissions or other compensation are addressed separately in both the Model Regulation and the rule. � COMMENT 16: The ACLI commented that subsection (1)(d) of NEW RULE XI (ARM 6.6.1018) appears to be drawn from the NAIC Life Insurance Disclosure Model Regulation, Section 6. It asked that the rule follow the Model Regulation more closely which acknowledges the possibility that a commission may not be paid and relies on the concept of payment rather than receipt. It asked that the rule be revised to state, "(d) if so, that a sales commission or other form of compensation is being paid in connection with the sale of the funeral insurance and the identity of person to whom it is paid." � RESPONSE 16: The department revised the rule to address the possibility that a commission may not be paid, but did not accept the suggested language. � COMMENT 17: The ACLI commented that subsection (1)(f) of NEW RULE XI (ARM 6.6.1018) appeared to be drawn from two sections of the NAIC Life Insurance Disclosure Model Regulation, Section 6, that address two independent areas and asked that subsection (1)(f) be separated into two subsections like the Model Regulation. � RESPONSE 17: The department revised the rule into two subsections. � COMMENT 18: The MFDA commented that subsection (1)(f) of NEW RULE XI (ARM 6.6.1018) is redundant to ARM 24.147.1504, promulgated by the Board of Funeral Service which requires these disclosures in the preneed funeral agreement. It commented that the insurer will not be aware of the relationship of the funeral insurance to the funding of a preneed funeral agreement and any guarantees in the agreement. It commented that the funeral insurance policy is a funding vehicle that is intended to be transferable to other funeral homes and that it is not appropriate to tie the funeral insurance to a particular funeral contract. � RESPONSE 18: The rule is based on the NAIC Life Insurance Disclosure Model Regulation, Section 6, pertaining to preneed funeral arrangements to be funded by life insurance. � While the Board of Funeral Service requires certain disclosures, those disclosures may vary from or exceed the disclosures contemplated by the department. For any disclosures required by both the board and the department, the disclosure form developed by the funeral insurance issuer and approved by the commissioner may identify the nature of the information to be disclosed and the life insurance producer or specialized funeral insurance producer will complete the specific information or provide a detailed reference to where the specific information can be found in the preneed funeral arrangement and attach a copy of the preneed funeral arrangement. � COMMENT 19: The ACLI commented that subsection (1)(g), now (1)(h), of NEW RULE XI (ARM 6.6.1018) appeared to be drawn from the NAIC Life Insurance Disclosure Model Regulation, Section 6. It asked that (1)(g)(ii) and (iii) be amended to mirror the Model Regulation and more clearly reflect the effect to be described. The ACLI asked that the rule be revised to state: "(ii) penalties to be incurred by the policyholder as a result of failure to make premium payments;" and "(iii) penalties to be incurred or monies to be received as a result of cancellation or surrender of the funeral insurance policy." � RESPONSE 19: The department revised subsection (1)(g)(ii), now (1)(h)(ii), as suggested. The department did not revise subsection (1)(g)(iii), now (1)(h)(iii), as suggested because "funeral insurance" is defined in these rules to include both individual policies and certificates where the policy is issued to a group. � COMMENT 20: The MFDA commented that subsection (1)(g), now (1)(h), of NEW RULE XI (ARM 6.6.1018) regarding when and under what circumstances a preneed funeral agreement is breached would not be known to the insurer. It commented that this information should be disclosed in the preneed funeral agreement and not repeated in the funeral insurance. � RESPONSE 20: See Response 18. � COMMENT 21: The MFDA commented that subsection (1)(h), now (1)(i), of NEW RULE XI (ARM 6.6.1018) regarding entitlements or obligations that arise if there is a difference between the funeral insurance proceeds and the amount needed to fund the preneed funeral arrangement would not be know to the insurer. It commented that the rule is redundant to ARM 24.147.1504, promulgated by the Board of Funeral Service, and the information should not be repeated in the funeral insurance. � RESPONSE 21: See Response 18. � COMMENT 22: The MFDA commented the subsection (1)(i), now (1)(j), of NEW RULE XI (ARM 6.6.1018) is redundant to ARM 24.147.1504, promulgated by the Board of Funeral Service which requires these disclosures in the preneed funeral agreement. It asked that the rule not be adopted. � RESPONSE 22: See Response 18. � COMMENT 23: The ACLI commented that subsection (1)(j), now (1)(k), of NEW RULE XI (ARM 6.6.1018) is not part of the NAIC Life Insurance Disclosure Model Regulation, Section 6. The ACLI and MFDA commented that whether the provider of funeral goods and services will accept assignments of funeral insurance and preneed funeral arrangements would not be known to insurers. The ACLI and MFDA asked that the rule not be adopted. � RESPONSE 23: The department revised the rule to require a disclosure, if known, whether the provider of funeral goods and services entering a preneed funeral arrangement with the applicant or insured would accept assignments of funeral insurance and preneed funeral arrangements. When a preneed funeral arrangement is made contemporaneously with the sale of funeral insurance, the producer will likely know whether the provider of funeral goods and services in the preneed funeral arrangement will accept assignments. The disclosure will help consumers in deciding whether to purchase funeral insurance or enter a preneed funeral arrangement or to assign existing life insurance or a preneed funeral arrangement. � The disclosure forms are required to be developed by the issuer and submitted to the commissioner for review and approval prior to issuing the same. For any information that cannot be determined until the time of application, the rule in (2) provides that the life insurance producer or specialized funeral insurance producer will complete the disclosure information specific to that funeral insurance transaction. � COMMENT 24: The ACLI commented that subsection (1)(l), now (1)(m), of NEW RULE XI (ARM 6.6.1018), regarding disclosure that funeral goods and services may be purchased prior to death by making payment directly to the licensed provider of funeral goods and services who would hold the funds in trust for the benefit of the purchasers under Title 37, chapter 19, MCA, is not part of the NAIC Life Insurance Disclosure Model Regulation, Section 6. The ACLI commented that the disclosure requirement would lead to overlapping regulatory authority over insurance producers and issuers which it does not support. The ACLI and MFDA commented they were not confident that the information to be disclosed benefited consumers. The ACLI commented that, to the extent that the information should be provided, it is more properly provided by an individual or entity regulated by the Board of Funeral Service under Title 37, chapter 19, MCA. The MFDA commented that there was no corresponding requirement in the Montana statutes or rules regulating the funeral industry requiring a trust-funded preneed funeral contract to disclose to the consumer that insurance could be used instead. The MFDA commented that the two funding methods should be on an even playing field. The ACLI and MFDA asked that the rule not be adopted. � RESPONSE 24: The disclosure will help consumers make a better informed decision whether purchasing funeral insurance is the best option for him or her. The funeral insurance being considered for purchase may not pay a death benefit or may pay a reduced death benefit in certain circumstances in accord with 33-20-121, MCA. The disclosure that funeral goods and services in a preneed funeral agreement may also be purchased by making payment directly to the provider of funeral goods and services who will hold the payment in trust under Title 33, chapter 19, MCA, will educate consumers.� � If an application for funeral insurance is declined by the insurer, a specialized funeral insurance producer, who is also a funeral director, mortician, mortuary, or undertaker and entering a preneed funeral arrangement, would reasonably be expected to advise the consumer that the preneed funeral arrangement could be funded through a trust arrangement under Title 33, chapter 19, MCA. By disclosing initially that a trust arrangement is available, consumers will be more informed and able to decide whether purchasing funeral insurance is their best choice. � The benefit to consumers from the disclosure is clear. Informed consumers are better able to make decisions that are suitable to their personal needs and situation. � Additionally, the rule only requires disclosure. It does not require that any specialized funeral insurance producer or other funeral director, mortician, mortuary, or undertaker make or enter trust arrangements. Further, the rule does not create an uneven playing field for either of these funding methods merely by requiring disclosure that a trust arrangement could be used to fund a preneed funeral arrangement. � The comment that the disclosure requirement would lead to overlapping regulatory authority over insurance producers and issuers is not clear to the department. Insurers and insurance producers are governed by the Montana Insurance Code in Title 33, MCA, and the associated administrative rules and regulated by the department. � COMMENT 25: The ACLI commented that subsection (1)(m), now (1)(n), of NEW RULE XI (ARM 6.6.1018) is not part of the NAIC Life Insurance Disclosure Model Regulation, Section 6, and referenced its comment regarding Rule XII (ARM 6.6.1020). The MFDA commented that there is not a similar prohibition if the preneed funeral arrangement is funded by a trust arrangement (under Title 37, chapter 19, MCA). The MFDA commented that it does not understand why the department opposes funeral homes offering discounts to attract preneed consumers and that it sees no reason for the prohibition. The ACLI and MFDA asked that the rule not be adopted. � RESPONSE 25: The department revised this disclosure rule to remove the word "current" before the word "price" to coincide with the prohibition in NEW RULE XII (ARM 6.6.1020). Please see the comments and response regarding section (2) of NEW RULE XII (ARM 6.6.1020) prohibiting inducements, such as discounts from the price of funeral goods and services, in the solicitation and sale of funeral insurance. � NEW RULE XII (ARM 6.6.1020) PROHIBITIONS � COMMENT 26: The ACLI commented that section (1) of NEW RULE XII (ARM 6.6.1020) prohibiting sale of funeral insurance conditioned upon certain requirements is duplicative of other statutory provisions, specifically, 33-18-301, 33-20-1501(2)(b), (5), and (6), MCA, and creates an ambiguity or conflict with those provisions. It asked that this rule not be adopted. � RESPONSE 26: The department removed subsection (1)(a) from the rule to avoid duplication with 33-18-301(4), MCA. The rest of the proposed rule did not duplicate or conflict with the statutory provisions listed. � The rule prohibits conditioning the sale of funeral insurance upon the applicant or insured agreeing to assign the funeral insurance proceeds to a funeral director, mortician, mortuary, or undertaker. Section 33-20-1501(3)(b), MCA, provides that funeral insurance must clearly indicate that the applicant may designate the beneficiary, including but not limited to a funeral director, mortician, mortuary, or undertaker, if the applicant has an insurable interest in the life of the insured. The statute pertains to the policy forms and the rule prohibits a practice. � Section 33-20-1501(5)(a), MCA, provides that, notwithstanding 33-15-414, MCA, funeral insurance contain an assignability clause allowing the policy or certificate to be assigned or otherwise transferred to another funeral director, mortician, mortuary, or undertaker licensed in Montana in conjunction with the assumption of the contractual obligation to provide funeral goods and services to the extent permitted by state or federal law for the purpose of the insured's eligibility for supplemental security income benefits, Medicaid, or other public assistance. The statute pertains to the policy forms and the rule prohibits a practice. � Section 33-20-1501(5)(b), MCA, prohibits a funeral director, mortician, mortuary, or undertaker from using the assignability clause to pledge, assign, transfer, borrow from, or otherwise encumber an insurance policy assigned to it for purposes of purchasing funeral goods or services prior to delivering all of the goods and performing all of the services contracted for, by, or on behalf of the insured. The rule prohibits a different practice. � The rule prohibits the practice of conditioning the sale of funeral insurance upon either the applicant agreeing to assign the funeral insurance proceeds to a funeral director, mortician, mortuary, or undertaker or the applicant or insured making or entering a preneed funeral arrangement. Funeral insurance is a separate contract from a preneed funeral arrangement and may be purchased without making or entering a preneed funeral arrangement. � Section 33-20-1501(6), MCA, pertains to possible recovery by Medicaid of funeral insurance proceeds. The rule does not conflict with or impair recovery by Medicaid. � COMMENT 27: The ACLI and MFDA commented that section (2) of NEW RULE XII (ARM 6.6.1020) prohibiting discounts from the current price of funeral goods and services as an inducement to purchase or assign funeral insurance would be detrimental to consumers. The ACLI commented that there is no statutory basis for the rule and the terms "discount" and "inducement" are not defined in the rule. The ACLI commented that the funeral industry practice of entering contracts that guarantee the price of funeral goods and services to be used in the future at present-day prices may be prohibited under the rule. The MFDA commented that the rule may curtail the ability of a consumer to transfer a preneed funeral arrangement to another funeral home because the rule prevents the funeral home receiving the assignment from honoring the guaranteed-price items in the preneed funeral arrangement if that funeral home's current prices are higher. The ACLI and MFDA asked that section (2) of the rule not be adopted. � RESPONSE 27: The department revised the rule and removed the word "current" before the word "price" to address the concerns about guaranteed-price items in preneed funeral arrangements. The revised rule does not impair the performance of or the assignment of preneed funeral arrangements that have guaranteed-price items. The revised rule provides that inducements to purchase funeral insurance are prohibited and identifies discounts from the price of funeral goods and services as a form of inducement. � The funeral industry is required to have and disclose price lists to consumers. Section 27-19-315, MCA, provides that the Board of Funeral Service shall adopt rules requiring mortuaries to disclose in writing to all customers a complete itemized list of all funeral costs and complete information regarding the need for embalming. ARM 24.147.1502 provides that mortuaries shall provide, in advance and prior to need, price information for types of funerals or alternatives. ARM 24.147.406 provides that morticians shall comply with all Federal Trade Commission (FTC) regulations governing the pricing of funeral goods and services and incorporates FTC Funeral Industry Practice Rules, 16 CFR 453 (1997), by reference. � In 16 CFR 453.2, funeral providers, being any individual or entity that sells or offers to sell funeral goods and services to the public, are required to provide casket price lists, outer burial container price lists, and a general price list. The general price list must be provided upon beginning discussion of the price of funeral goods and services, the type of funeral service or disposition, or specific funeral goods or services offered by the funeral provider. The general price list must contain prices for certain funeral goods and services listed in the regulation. Further, 16 CFR 453.7 provides a funeral provider may not include in the required price lists any statement or information that alters or contradicts the information required to be included in the list. � Additionally, ARM 24.147.1504(1)(b)(v) and (vii) provide that preneed funeral agreements must include the provider's current general price list and an itemized statement of funeral goods and services to be provided and whether the items are price-guaranteed. Accordingly, the funeral industry is clearly required to have and provide price lists to consumers making preneed funeral arrangements. � Under 33-20-1501, MCA, funeral insurance is a type of life insurance that may be sold by life insurance producers or specialized funeral insurance producers. The solicitation and sale of life insurance is governed by the Montana Insurance Code. � To protect consumers by promoting easier price comparisons and competition in the industry, inducements are broadly prohibited in the solicitation and sale of life insurance at 33-18-208, MCA (no person shall offer, promise, or give anything of value whatsoever not specified in the insurance contract). In 33-20-1503, MCA, the department may make rules pertaining to funeral insurance, a type of life insurance, to protect consumers. � The revised rule provides that inducements to purchase funeral insurance are prohibited and identifies discounts from the price of funeral goods and services as a form of inducement. Since specialized funeral insurance producers will also be funeral directors, morticians, mortuaries, and undertakers and will likely be entering a preneed funeral arrangement contemporaneously with selling funeral insurance, a rule specifically addressing discounts as inducements will provide guidance to specialized funeral insurance producers and consumers.� � /s/ Christina L. Goe�������������/s/ Janice S. VanRiper Christina L. Goe����������������Janice S. VanRiper Rule Reviewer�������������������Deputy Insurance Commissioner ���������������������������������������State Auditor/Commissioner of Insurance � Certified to the Secretary of State January 22, 2008. |
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