1

Public Protection Cabinet 1

Department of Insurance 2

Life and Health Division 3

(Amendment) 4

806 KAR 12:180. Military sales practices. 5

RELATES TO: KRS 304.1-040, 304.5-020, 304.5-030, 304.9-020(10) [304.9-020(7)], 6

304.12-010, 304.12-030, 304.15-310, 12 C.F.R. 205, 230, 707, 10 U.S.C. 992, 12 U.S.C. 4301, 7

26 U.S.C. 401(a), (k), 403(b), 408(k), (p), 414, 457, 501(c)(23), 29 U.S.C. 1001, 38 U.S.C. 1965, 8

Pub.L. 109-290 9

STATUTORY AUTHORITY: KRS 304.2-110, 304.12-257, 10 U.S.C. 992(9)(a)(2) 10

NECESSITY, FUNCTION AND CONFORMITY: KRS 304.12-257 authorizes the 11

commissioner [executive director] to promulgate administrative regulations to protect service 12

members of the United States Armed Forces from dishonest insurance marketing and sales 13

practices. [EO 2008-507, effective June 16, 2008, reorganized the Office of Insurance as the 14

Department of Insurance and established the Commissioner of Insurance, rather than executive 15

director, as head of the department.] 10 U.S.C. 992 sec 9(a)(2) requires the states to collectively 16

work with the Secretary of Defense to ensure implementation of appropriate standards to protect 17

members of the Armed Forces from dishonest and predatory insurance sales practices while on a 18

military installation of the United States, and further requires each state to identify its role in 19

promoting the standards in a uniform manner, not later than twelve (12) months after the date of 20

2

enactment of the federal law. This administrative regulation sets forth standards to protect active 1

duty service members of the United States Armed Forces from dishonest and predatory insurance 2

sales practices by declaring certain identified practices to be false, misleading, deceptive or 3

unfair. 4

Section 1. Definitions. (1)(a) "Active duty" means full-time duty in the active military 5

service of the United States and includes members of the reserve component, both the National 6

Guard and Reserve, while serving under published orders for active duty or full-time training. 7

(b) "Active duty" does not include members of the reserve component who are 8

performing active duty or active duty for training under military calls or orders specifying 9

periods of less than thirty-one (31) calendar days. 10

(2) "Annuity" is established[defined] in KRS 304.5-030. 11

(3) "Commissioner" means the Commissioner of the Department of Insurance as 12

established in KRS 304.1-050(1). 13

(4) "Department of Defense Personnel" means all active duty service members and all 14

civilian employees, including nonappropriated fund employees and special government 15

employees, of the Department of Defense. 16

(5) "Door to door" means a solicitation or sales method in which an insurance producer 17

proceeds randomly or selectively from household to household without a prior specific 18

appointment. 19

3

(6) "General advertisement" means an advertisement having as its sole purpose the 1

promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the 2

insurer or the insurance producer. 3

(7) "Insurable needs" means the risks associated with premature death taking into 4

consideration the financial obligations and immediate and future cash needs of the applicant’s 5

estate or survivors or dependents. 6

(8) "Insurer" is established[defined] in KRS 304.1-040. 7

(9) "Insurance producer" is established[defined] in KRS 304.9-020(10) [304.9-020(7)]. 8

(10) "Known" or "knowingly" means the insurance producer or insurer had actual 9

awareness, or in the exercise of ordinary care should have known, when the act or practice 10

complained of occurred, that the person solicited is a service member. 11

(11) "Life insurance" is established[defined] in 304.5-020. 12

(12) "Military installation" means any federally owned, leased, or operated base, 13

reservation, post, camp, building, or other facility to which service members are assigned for 14

duty, including barracks, transient housing, and family quarters. 15

(13) "MyPay" means the Defense Finance and Accounting Service Web-based system 16

that enables service members to process certain discretionary pay transactions or provide updates 17

to personal information data elements without using paper forms. 18

(14) "Other military survivor benefits" mean the death gratuity, funeral reimbursement, 19

transition assistance, survivor and dependents’ educational assistance, dependency and 20

4

indemnity compensation, TRICARE healthcare benefits, survivor housing benefits and 1

allowances, federal income tax forgiveness, and Social Security survivor benefits. 2

(15) "SGLI" means the Servicemembers’ Group Life Insurance as established[authorized] 3

by 38 U.S.C. section 1965. 4

(16) "Service member" means an active duty officer, both commissioned and warrant, or 5

enlisted member of the United States Armed Forces. 6

(17)(a) "Side fund" means a fund or reserve that is part of or otherwise attached to a life 7

insurance policy by rider, endorsement, or other mechanism which accumulates premium or 8

deposits with interest or by other means. 9

(b) "Side fund" shall [does] not mean: 10

1. Accumulated value or cash value or secondary guarantees provided by a universal life 11

policy; 12

2. Cash values provided by a whole life policy which are subject to standard 13

nonforfeiture law for life insurance; or 14

3. A premium deposit fund which: 15

a. Contains only premiums paid in advance which accumulate at interest; 16

b. Imposes no penalty for withdrawal; 17

c. Does not permit funding beyond future required premiums; 18

d. Is not marketed or intended as an investment; and 19

e. Does not carry a commission, either paid or calculated. 20

5

(18) "Specific appointment" means a prearranged appointment agreed upon by both 1

parties and definite as to place and time. 2

(19) "United States Armed Forces" means all components of the Army, Navy, Air Force, 3

Marine Corps, and Coast Guard. 4

(20) "VGLI" means the Veterans’ Group Life Insurance, as authorized by 38 U.S.C. 5

section 1965. 6

Section 2. Scope. This administration regulation shall apply only to the solicitation or 7

sale of a life insurance policy or annuity by an insurer or insurance producer to an active duty 8

service member of the United States Armed Forces. 9

Section 3. Exemptions. (1) This administrative regulation shall not apply to solicitations 10

or sales involving: 11

(a) Credit insurance; 12

(b) Group life insurance or group annuities if 13

1. An in-person, face-to-face solicitation of individuals by an insurance producer is not 14

made; or 15

2. The contract or certificate does not include a side fund; 16

(c) An application to the existing insurer that issued the existing policy or contract if: 17

1. A contractual change or a conversion privilege is being exercised; 18

2. The existing policy or contract is being replaced by the same insurer pursuant to a 19

program filed with and approved by the commissioner; or 20

6

3. A term conversion privilege is exercised among corporate affiliates; 1

(d) Individual stand-alone health policies, including disability income policies; 2

(e) Contracts offered by SGLI or VGLI; 3

(f) Life insurance contracts offered through or by a non-profit military association, 4

qualifying under 26 U.S.C. 501(c) (23), and which are not underwritten by an insurer; or 5

(g) Contracts used to fund: 6

1. An employee pension or welfare benefit plan that is covered by the Employee 7

Retirement and Income Security Act, 29 U.S.C. 1001; 8

2. A plan described by 26 U.S.C. 401(a), 401(k), 403(b), 26 U.S. C. 408(k) or 408(p), as 9

amended, if established or maintained by an employer; 10

3. A government or church plan defined in 26 U.S.C. 414; 11

4. A government or church welfare benefit plan, or a deferred compensation plan of a 12

state or local government or tax exempt organization under 26 U.S.C. 457; 13

5. A nonqualified deferred compensation arrangement established or maintained by an 14

employer or plan sponsor; 15

6. Settlements of or assumptions of liabilities associated with personal injury litigation or 16

any dispute or claim resolution or process; or 17

7. Prearranged funeral contracts. 18

(2) This administrative regulation shall not be construed to abrogate the ability of a 19

nonprofit organization or another organization to educate members of the United States Armed 20

7

Forces in accordance with Department of Defense Instruction 1344.07, "Personal Commercial 1

Solicitation on DoD Installations." 2

(3)(a) General advertisements, direct mail, and internet marketing shall not constitute 3

solicitation. 4

(b) Telephone marketing shall not constitute solicitation if the caller: 5

1. Explicitly and conspicuously discloses that the product concerned is life insurance; and 6

2. Does not make a statement that avoids a clear and unequivocal statement that life 7

insurance is the subject matter of the solicitation. 8

(c) This subsection shall not be construed to exempt an insurer or insurance producer 9

from the requirements of this administrative regulation in any in-person, face-to-face meeting 10

established as a result of the exemptions identified in this subsection. 11

Section 4. Practices Declared False, Misleading, Deceptive or Unfair on a Military 12

Installation. (1) The following acts or practices, if committed on a military installation by an 13

insurer or insurance producer, with respect to the in-person, face-to-face solicitation of life 14

insurance shall be false, misleading, deceptive or unfair: 15

(a) Knowingly soliciting the purchase of any life insurance product: 16

1. Door to door; or 17

2. Without first establishing a specific appointment for each meeting with the prospective 18

purchaser; 19

(b) Soliciting service members in a group or mass audience or in a captive audience 20

where attendance is not voluntary; 21

8

(c) Knowingly making appointments with or soliciting service members during their 1

normally scheduled duty hours; 2

(d) Making appointments with or soliciting service members in 3

1. Barracks; 4

2. Day rooms; 5

3. Unit areas; 6

4. Transient personnel housing; or 7

5. Other areas where the installation commander has prohibited solicitation; 8

(e) Soliciting the sale of life insurance without first obtaining permission from the 9

installation commander or the commander’s designee; 10

(f) Posting unauthorized bulletins, notices, or advertisements; 11

(g) Failing to present Department of Defense Form 2885, "Personal Commercial 12

Solicitation Evaluation," to service members solicited or encouraging service members solicited 13

not to complete or submit a Department of Defense Form 2885; or 14

(h) Knowingly accepting an application for life insurance or issuing a policy of life 15

insurance on the life of an enlisted member of the United States Armed Forces without first 16

obtaining for the insurer’s files a completed copy of a required form which confirms that the 17

applicant has received counseling or fulfilled any other similar requirement for the sale of life 18

insurance established by regulations, directives or rules of the Department of Defense or any 19

branch of the Armed Forces. 20

9

(2) The following acts or practices if committed on a military installation by an insurer or 1

insurance producer constitute corrupt practices, improper influences, or inducements and shall be 2

false, misleading, deceptive, or unfair: 3

(a) Using Department of Defense personnel, directly or indirectly, as a representative or 4

agent in any official or business capacity with or without compensation with respect to the 5

solicitation or sale of life insurance to service members; and 6

(b) Using an insurance producer to participate in any United States Armed Forces 7

sponsored education or orientation program. 8

Section 5. Practices Declared False, Misleading, Deceptive, or Unfair Regardless of 9

Location. 10

(1) The following acts or practices by an insurer or insurance producer constitute corrupt 11

practices, improper influences, or inducements and shall be false, misleading, deceptive, or 12

unfair: 13

(a)1. Submitting, processing, or assisting in the submission or processing of any 14

allotment form or similar device used by the United States Armed Forces to direct a service 15

member’s pay to a third party for the purchase of life insurance including using or assisting in 16

using a service member's "MyPay" account or other similar internet or electronic medium for 17

those purposes; 18

2. This subsection does not prohibit assisting a service member by providing insurer or 19

premium information necessary to complete an allotment form; 20

10

(b)1. Knowingly receiving funds from a service member for the payment of premium 1

from a depository institution with which the service member does not have a formal banking 2

relationship; 3

2. For purposes of this section, a formal banking relationship is established if the 4

depository institution: 5

a. Provides the service member a deposit agreement and periodic statements and makes 6

the disclosures required by the Truth in Savings Act, 12 U.S.C. 4301 et seq. and 12 C.F.R. 205, 7

230, and 707; and 8

b. Permits the service member to make deposits and withdrawals unrelated to the 9

payment or processing of insurance premiums; 10

(c) Employing a device or method or entering into an agreement if funds received from a 11

service member by allotment for the payment of insurance premiums are identified on the service 12

member’s leave and earnings statement or equivalent or successor form as "savings" or 13

"checking" and where the service member has no formal banking relationship; 14

(d) Entering into any agreement with a depository institution for the purpose of receiving 15

funds from a service member if the depository institution, with or without compensation, agrees 16

to accept direct deposits from a service member with whom it has no formal banking 17

relationship; 18

(e) Using Department of Defense personnel, directly or indirectly, as a representative or 19

agent in an official or unofficial capacity with or without compensation with respect to the 20

solicitation or sale of life insurance to service members who are junior in rank or grade, or to the 21

family members of such personnel; 22

11

(f) Offering or giving anything of value, directly or indirectly, to Department of Defense 1

personnel to procure their assistance in encouraging, assisting, or facilitating the solicitation or 2

sale of life insurance to another service member; 3

(g) Knowingly offering or giving anything of value to a service member for the member's 4

attendance at any event where an application for life insurance is solicited; or 5

(h) Advising a service member to change the member's income tax withholding or state 6

of legal residence for the sole purpose of increasing disposable income to purchase life 7

insurance. 8

(2) The following acts or practices by an insurer or insurance producer lead to confusion 9

regarding source, sponsorship, approval, or affiliation and shall be false, misleading, deceptive, 10

or unfair: 11

(a)1. Making any representation, or using any device, title, descriptive name or identifier 12

that has the tendency or capacity to confuse or mislead a service member into believing that the 13

insurer, insurance producer, or product offered is affiliated, connected or associated with, 14

endorsed, sponsored, sanctioned, or recommended by the U.S. Government, the United States 15

Armed Forces, or any state or federal agency or government entity; 16

2. This section shall not be construed to prohibit a person from using a professional 17

designation awarded after the successful completion of a course of instruction in the business of 18

insurance by an accredited institution of higher learning; or 19

(b) Soliciting the purchase of any life insurance product through the use of or in 20

conjunction with a third party organization that promotes the welfare of or assists members of 21

the United States Armed Forces in a manner that has the tendency or capacity to confuse or 22

12

mislead a service member into believing that either the insurer, insurance producer, or insurance 1

product is affiliated, connected or associated with, endorsed, sponsored, sanctioned or 2

recommended by the U.S. Government or the United States Armed Forces. 3

(3) The following acts or practices by an insurer or insurance producer lead to confusion 4

regarding premiums, costs, or investment returns and shall be false, misleading, deceptive, or 5

unfair: 6

(a) Using or describing the credited interest rate on a life insurance policy in a manner 7

that implies that the credited interest rate is a net return on premium paid; or 8

(b) Excluding individually issued annuities, misrepresenting the mortality costs of a life 9

insurance product, including stating or implying that the product "costs nothing" or is "free." 10

(4) The following acts or practices by an insurer or insurance producer regarding SGLI or 11

VGLI shall be false, misleading, deceptive, or unfair: 12

(a) Making any representation regarding the availability, suitability, amount, cost, 13

exclusions or limitations to coverage provided to a service member or dependents by SGLI or 14

VGLI, which is false, misleading, or deceptive; 15

(b) Making any representation regarding conversion requirements, including the costs of 16

coverage, or exclusions or limitations to coverage of SGLI or VGLI to private insurers which is 17

false, misleading, or deceptive; or 18

(c) Suggesting, recommending, or encouraging a service member to cancel or terminate 19

his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy 20

13

unless the replacement shall take effect upon or after the service member’s separation from the 1

United States Armed Forces. 2

(5) The following acts or practices by an insurer or insurance producer regarding 3

disclosure shall be false, misleading, deceptive, or unfair: 4

(a) Deploying, using, or contracting for a lead generating material designed exclusively 5

for use with service members that does not clearly and conspicuously disclose that the recipient 6

will be contacted by an insurance producer, if that is the case, for the purpose of soliciting the 7

purchase of life insurance; 8

(b) Failing to disclose that a solicitation for the sale of life insurance will be made if 9

establishing a specific appointment for an in-person, face-to-face meeting with a prospective 10

purchaser; 11

(c) Excluding individually issued annuities, failing to clearly and conspicuously disclose 12

the fact that the product being sold is life insurance; 13

(d) Failing to make, at the time of sale or offer to an individual known to be a service 14

member, the written disclosures required by Section 10 of the "Military Personnel Financial 15

Services Protection Act," Pub. L. No. 109-290, p.16; or 16

(e) Excluding individually issued annuities, if the sale is conducted in-person face-to-face 17

with an individual known to be a service member, failing to provide the applicant if the 18

application is taken: 19

1. An explanation of a free look period with instructions on how to cancel if a policy is 20

issued; and 21

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2.a. A copy of the application; or 1

b.(i) A written disclosure. 2

(ii) The copy of the application or the written disclosure shall set out the type of life 3

insurance and the death benefit applied for and the policy or benefit [its] expected first year cost. 4

A basic illustration that meets the requirements of 806 KAR 12:140 shall be sufficient to meet 5

this requirement for a written disclosure. 6

(6) The following acts or practices by an insurer or insurance producer with respect to the 7

sale of certain life insurance products shall be false, misleading, deceptive, or unfair: 8

(a) Excluding individually issued annuities, recommending the purchase of any life 9

insurance product which includes a side fund to a service member unless the insurer has 10

reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable; 11

(b) Offering for sale or selling a life insurance product which includes a side fund to a 12

service member who is: 13

1. Currently enrolled in SGLI; and 14

2. Presumed unsuitable unless, after the completion of a needs assessment, the insurer 15

demonstrates that the applicant’s SGLI death benefit, together with any other military survivor 16

benefits, savings and investments, survivor income, and other life insurance are insufficient to 17

meet the applicant’s insurable needs for life insurance; 18

(c) Excluding individually issued annuities, offering for sale or selling a life insurance 19

contract that includes a side fund: 20

15

1. Unless interest credited accrues from the date of deposit to the date of withdrawal and 1

permits withdrawals without limit or penalty; 2

2. Unless the applicant has been provided with a schedule of effective rates of return 3

based upon cash flows of the combined product. 4

a. The effective rate of return shall consider all premiums and cash contributions made by 5

the policyholder and all cash accumulations and cash surrender values available to the 6

policyholder in addition to life insurance coverage. 7

b. The schedule shall be provided for at least each policy year from one (1) to ten (10) 8

and for every subsequent fifth policy year ending at age 100, policy maturity, or final expiration; 9

and 10

3. That by default diverts or transfers funds accumulated in the side fund to pay, reduce, 11

or offset any premiums due; or 12

(d) Excluding individually issued annuities, offering for sale or selling a life insurance 13

contract that after considering all policy benefits, does not comply with KRS 304.15-310. 14

Section 6. Incorporation by Reference. (1) The following material is incorporated by reference: 15

(a) "Department of Defense Instruction Number 1344.07, Personal Commercial 16

Solicitation on DoD Installations", (March 30, 2006); and 17

(b) "Department of Defense Form 2885, Personal Commercial Solicitation Evaluation", 18

(April 2006). 19

(2) This material may be inspected, copied, or obtained, subject to applicable copyright 20

law, at the Department of Insurance, Mayo-Underwood Building, 500 Mero Street [215 West 21

16

Main Street], Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This 1

material is also available on the department's website at: http://insurance.ky.gov. 2

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806 KAR 12:180 READ AND APPROVED:

Sharon P. Clark Commissioner, Department of Insurance

Date

Kerry B. Harvey Secretary, Public Protection Cabinet

Date

18

PUBLIC HEARING AND PUBLIC COMMENT PERIOD

A public hearing on this administrative regulation shall be held at 9:00 AM on December 21, 2020 at 500 Mero Street, Frankfort, KY 40602. Individuals interested in being heard at this hearing shall notify this agency in writing by five workdays prior to the hearing, of their intent to attend. If no notification of intent to attend the hearing is received by that date, the hearing may be canceled. This hearing is open to the public. Any person who wishes to be heard will be given an opportunity to comment on the proposed administrative regulation. A transcript of the public hearing will not be made unless a written request for a transcript is made. If you do not wish to be heard at the public hearing, you may submit written comments on the proposed administrative regulation. Written comments shall be accepted through 11:59 PM on December 31, 2020. Send written notification of intent to be heard at the public hearing or written comments on the proposed administrative regulation to the contact person below. Contact Person: DJ Wasson Title: Deputy Commissioner Address: 500 Mero Street, Frankfort, KY 40601 Phone: +1 (502) 564-6026 Fax: +1 (502) 564-1453 Email: dj.wasson@ky.gov

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REGULATORY IMPACT ANALYSIS AND TIERING STATEMENT

Regulation: 806 KAR 12:180 Contact Person: DJ Wasson Phone: +1 (502) 564-6026 Email: dj.wasson@ky.gov (1) Provide a brief summary of: (a) What this administrative regulation does: This administrative regulation establishes standards to protect active duty service members of the United State Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive and unfair. (b) The necessity of this administrative regulation: 10 U.S.C. 992 sec. 9(a)(2) requires the states to collectively work with the Secretary of Defense to ensure implementation of appropriate standards to protect members of the Armed Forces from dishonest and predatory insurance sales practices while on a military installation of the United States, and further requires each state to identify its role in promoting the standards in a uniform manner, not later than twelve (12) months after the date of enactment of the federal law. Additionally, the Kentucky Department of Insurance has investigated complaints about improper sales of insurance on military bases. The standards set forth in this administrative regulation are necessary to protect the service members serving on military installations in Kentucky. (c) How this administrative regulation conforms to the content of the authorizing statutes: KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to make reasonable rules and regulations necessary for the effectuation of any provision of the Kentucky Insurance Code. 10 U.S.C. 992 sec 9(a)(2) requires the states to collectively work with the Secretary of Defense to ensure implementation of appropriate standards to protect members of the Armed Forces from dishonest and predatory insurance sales practices while on a military installation of the United States, and further requires each state to identify its role in promoting the standards in a uniform manner, not later than twelve (12) months after the date of enactment of the federal law. This administrative regulation will define specific practices that are false, misleading and deceptive in the sale of life insurance and annuities on military installations. (d) How this administrative regulation currently assists or will assist in the effective administration of the statutes: This administrative regulation establishes appropriate uniform standards for the sale of life insurance and annuities to service members on military installations. It further specifies practices that will be considered false, misleading or deceptive. This administrative regulation is based on the National Association of Insurance Commissioners Model Regulation. (2) If this is an amendment to an existing administrative regulation, provide a brief summary of: (a) How the amendment will change this existing administrative regulation:

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(b) The necessity of the amendment to this administrative regulation: The amendments made are necessary to meet the requirements of KRS Chapter 13A, as well as to remove the Emergency Order no longer in effect.

(c) How the amendment conforms to the content of the authorizing statutes: KRS 304.2-110 provides that the Commissioner of Insurance shall make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. (d) How the amendment will assist in the effective administration of the statutes: (3) List the type and number of individuals, businesses, organizations, or state and local governments affected by this administrative regulation: This regulation will affect the approximately 449 insurers that are licensed to offer life insurance in Kentucky, and the approximately 70,348 insurance agents that are licensed to sell life insurance in Kentucky. (4) Provide an analysis of how the entities identified in the previous question will be impacted by either the implementation of this administrative regulation, if new, or by the change, if it is an amendment, including: (a) List the actions each of the regulated entities have to take to comply with this regulation or amendment: Regulated entities will be required to sell life insurance and annuities on military installations in accordance with the guidelines set forth in this administrative regulation. The amendments to this administrative regulation are technical in nature to conform to KRS 13A requirements and will not change current practices.

(b) In complying with this administrative regulation or amendment, how much will it cost each of the entities: As the amendments to this administrative regulation are technical to comply with KRS 13A, there will not be any cost to the entities.

(c) As a result of compliance, what benefits will accrue to the entities: Compliance with this administrative regulation will allow insurers to use advertising materials publically. The amendments to this administrative regulation are technical only and will not require additional implementation by the regulated entities.

(5) Provide an estimate of how much it will cost the administrative body to implement this administrative regulation:

(a) Initially: Implementation of this amendment is not anticipated to have an initial cost on the Department of Insurance.

(b) On a continuing basis: Implementation of this amendment is not anticipated to have an on-going cost on the Department of Insurance.

(6) What is the source of the funding to be used for the implementation and enforcement of this administrative regulation: The Department will use funds from its current operational budget to perform the tasks necessary.

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(7) Provide an assessment of whether an increase in fees or funding will be necessary to implement this administrative regulation, if new, or by the change if it is an amendment: An increase of fees will not be necessary because additional personnel is likely unnecessary.

(8) State whether or not this administrative regulation established any fees or directly or indirectly increased any fees: This administrative regulation does not directly establish any new fees.

(9) TIERING: Is tiering applied? Explain why or why not. Tiering is not applied.

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FISCAL NOTE ON STATE OR LOCAL GOVERNMENT

Regulation: 806 KAR 12:180 Contact Person: DJ Wasson Phone: +1 (502) 564-6026 Email: dj.wasson@ky.gov (1) What units, parts or divisions of state or local government (including cities, counties, fire departments, or school districts) will be impacted by this administrative regulation? The Kentucky Department of Insurance will be impacted as the implementer of the regulation. (2) Identify each state or federal statute or federal regulation that requires or authorizes the action taken by the administrative regulation. KRS 304.2-110, 304.12-257, 10 U.S.C. 992(9)(a)(2) (3) Estimate the effect of this administrative regulation on the expenditures and revenues of a state or local government agency (including cities, counties, fire departments, or school districts) for the first full year the administrative regulation is to be in effect. If specific dollar estimates cannot be determined, provide a brief narrative to explain the fiscal impact of the administrative regulation. (a) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for the first year? This administrative regulation is not expected to generate any revenue in the first year. (b) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for subsequent years? This administrative regulation is not expected to generate any revenue in subsequent years. (c) How much will it cost to administer this program for the first year? This administrative regulation will not have a cost to implement in the first year. (d) How much will it cost to administer this program for subsequent years? This administrative regulation will not have a cost to administer subsequent years. Note: If specific dollar estimates cannot be determined, provide a brief narrative to explain the fiscal impact of the administrative regulation. (4) Revenues (+/-): Neutral (5) Expenditures (+/-): Neutral (6) Other Explanation: As the amendments to this administrative regulation are technical amendments to comply with KRS 13A, this administrative regulation will not have a fiscal impact on the Department of Insurance.

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FEDERAL MANDATE ANALYSIS COMPARISON 806 KAR 12:180

Contact Person: DJ Wasson, phone +1 (502) 564-6026, email dj.wasson@ky.gov

(1) Federal statute or regulation constituting the federal mandate. The federal statute requiring promulgation of this administrative regulation is Pub. L. 109-290, the Military Personnel Financial Services Protection Act.

(2) State compliance standards. The federal Military Personnel Financial Services Protection Act requires states to collectively work with the Secretary of Defense to implement appropriate military personnel protection standards regarding dishonest and predatory insurance sales practices on U.S. military installations, including those abroad. Each state must identify its role in promoting these standards in a uniform manner no later than September 29, 2007

(3) Minimum or uniform standards contained in the federal mandate. The states, through the National Association of Insurance Commissioners (NAIC), worked with the Department of Defense to develop minimum standards. These standards were adopted in the NAIC Military Sales Practices Model Regulation.

(4) Will this administrative regulation impose stricter requirements, or additional or different responsibilities or requirements, than those required by the federal mandate? This administrative regulation imposes the following requirements in addition to the federal mandate:

• The federal mandate is limited to the development of standards to protect service members from dishonest and predatory insurance sales practices occurring on military installations. However, the model includes practices that occur off base as well. This expansion was based on the NAIC Working Group’s research which found that many of the more egregious practices were not confined to the military reservation, such as solicitations in agents’ offices or young trainees being invited to “pizza parties” where insurance was solicited. The Department of Defense fully supports this expansion of the scope of the federal mandate.

• The NAIC model regulation limited the suitability requirements to specific pay grades. This administrative regulation requires the suitability standards for all service members, regardless of pay grade.

(5) Justification for the imposition of the stricter standard, or additional or different responsibilities or requirements.

• With regard to the expansion of the scope of the administrative regulation, the expansion was based on the NAIC Working Group’s research which found that many of the

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more egregious practices were not confined to the military reservation, such as solicitations in agents’ offices or young trainees being invited to “pizza parties” where insurance was solicited. The Department of Defense fully supports this expansion of the scope of the federal mandate.

• The decision to expand the application of suitability standards was based on Kentucky-specific investigations. Prior to the federal legislation, the Department of Insurance participated in investigations of predatory practices in the sale of life insurance on the military bases in Kentucky. Those investigations did not reveal that the predatory practices were limited to service members in specific pay grades. Therefore, the Department of Insurance believes that all service members deserve this protection.