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June 08, 2005 at 08:00 PM
Boston
Regulators meeting here voted to adopt a resolution opposing the expansion of state insurable interest laws.
Action was taken during the summer meeting of the National Association of Insurance Commissioners.
The resolution calls on the Life Insurance and Annuities “A” Committee of the NAIC to “strongly oppose efforts to expand state insurable interest laws to permit the use of charities to allow private investors to purchase life insurance on individuals with whom investors have no relationship.” The resolution now passes to NAIC executive and plenary committees.
Jim Poolman, chair of the “A” Committee and North Dakota insurance commissioner, said the resolution will emphasize regulators’ interest in preserving insurable interest and their concern that current laws not be exploited.
There is also the potential for regulators to tell Congress that preserving insurable interest is important. Currently, a bipartisan bill, S. 993, builds on a proposal in the President’s fiscal year 2006 budget by creating an excise tax on investor-owned life insurance.
“I’m astounded that insurance companies would be in Congress asking that there be legislation to tax insurance,” said Walter Bell, Alabama insurance commissioner.
He noted that “it is a slippery slope” and wondered whether at some point in the future he might end up paying tax on his own life insurance.
A person is trying to buy life insurance for free when he/she enters into one of these (investor-owned) transactions, Bell said, and often when there is something for free, there is also something wrong.
J. Leigh Griffith, a Nashville attorney representing LILAC Capital, Nashville, explained that investor-owned life insurance was really an arbitrage between the pricing of two different products, an annuity and life insurance.
“This is the crux of the whole debate,” Poolman responded.
