It was gratifying to see that a regulatory panel convened for the summer meeting of the National Association of Insurance Commissioners took the definite step of going on record against the expansion of state insurable interest laws. Now it is up to the full NAIC to put the seal on this resolution.
The unfortunate expansion of insurable interest laws has picked up speed in various jurisdictions around the country and it can only be hoped that if state insurance commissioners come out against it that legislators in their states will pay heed.
Among states that have expanded such laws are Texas, North Carolina and Tennessee.
The case of Texas, which has seen the proliferation of products made possible by the broadening of insurable interest laws, is particularly revealing. Back in February a resolution was put forth at NCOIL by a Texas legislator urging other states to oppose expansion efforts. Essentially, the message was “not to do what Texas did.”
It’s hard to overstate how important this issue is for the business. The tax-favored status of life insurance is put in danger if it is perceived by lawmakers to be simply another financial vehicle for making a buck.
What’s pushing this is something relatively new to the market called investor-owned life insurance (IOLI), wherein a third party with no connection or insurable interest to the insured essentially uses the insured’s life as an investment.
This is usually done through a charity and is used in tandem with an annuity purchase that funds the life insurance premiums.
In fact, at the NAIC meeting, as reported by Jim Connolly, J. Leigh Griffith, a Nashville attorney who represents LILAC Capital, said IOLI was really an arbitrage between the pricing of two different products, an annuity and life insurance.
Just what the business needs–an equivalent of a hedge fund based on insuring people you don’t know!