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Life Settlement Proposals Could Affect Viatical Brokers And Contracts

By Jim Connolly

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The life settlement industry is trying to get regulators to listen to two proposals that would impact viatical brokers as well as an insureds contractual right to viaticate a policy.

One of the issues–whether or not an insurance contract can contain language that prohibits viatication of a life insurance policy–is scheduled to be reviewed by regulators at the National Association of Insurance Commissioners, Kansas City, Mo.

Different states are taking different positions, according to Lester Dunlap, assistant commissioner with the Louisiana insurance department and chair of the NAICs viatical settlements working group.

In Louisiana, such a prohibition is not permitted, Dunlap explains, because there are legislative and regulatory frameworks in place to protect consumers. “If we were discussing this 10-12 years ago, it might have been a different story,” he adds.

A second issue that life settlement representatives are trying to get heard is whether viaticating policies is, in fact, the business of insurance, Dunlap says.

If it is considered the business of insurance, then the viatical industry would be subject to the requirements of the Gramm-Leach-Bliley Act of 1999, he says.

And, if that were the case, then it is being argued that it could negate the need for a viatical brokers license if the broker is already an insurance producer, Dunlap explains.

The issue has come up before the viatical settlements working group and after “deliberate” discussion it was decided not to address it in the model regulation, he says.

Final touches are being put on the Viatical Settlements model regulation with the working group scheduled to vote up the draft on Oct. 9. The model could be fully adopted by the NAIC by March of next year.

The work that regulators, insurers and life settlement representatives focused on during the recent fall NAIC meeting was finalizing a form sent to insurers to verify the life insurance contract.

During the discussion, it was reiterated that the forms purpose was solely to verify coverage and that there was not a broader purpose of collecting large amounts of information. The discussion noted that if more information was needed from insurers, a subsequent request could be made for it.

Among other things, the model requires that an applicant for a viatical brokers license pass a department examination.

It also states that an individual who holds a life insurance license for more than a year and is in good standing with the department is exempt from the life insurance portion of the exam.

The model also lays out a schedule to attempt to ensure that viators, those who are selling their policies, receive a reasonable return for giving up the value of their policies.

For instance, it states that if an insureds life expectancy is less than six months, then the minimum percentage of face value less loans must total 80%. For those with a life expectancy of 25 months or more, viators must receive either the greater of the cash surrender value or the accelerated death benefit in the policy.

The American Council of Life Insurers, Washington, says that, in general, if an insurer is prohibited from putting language in a contract, that could be an issue, according to Lynn Boyd, ACLI senior director. However, on the issue of language allowing viatication of policies, the ACLI is waiting to see what ensues, she says.

The ACLI supports the model regulation draft as it stands, Boyd says.

At press time, a representative for the Viatical and Life Settlement Association of America, Orlando, Fla., could not be reached for comment.

However, a May 23, 2003 letter sent by the organizations executive director, Doug Head, noted that increased use of such a document could “assist in the market development and transactional ease which we, and we assume others, seek to engender.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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