A streamlined version of the State Modernization and Regulatory Transparency Act (SMART) that would give pre-emptive regulatory authority to home-state regulators is being drafted by staff of the House Financial Services Committee.

The purpose of the redrafting is to reduce the size and complexity of the bill substantively, with some seeing its size dropping from the current 300 pages to 60 pages.

Other purposes are to “jump start” industry interest in the bill by making it less controversial, and also out of concern that the moderate House approach to insurance regulatory reform is being crowded out by the optional federal charter legislation introduced in late April by two members of the Senate Banking Committee.

In general, the House bill is generating moderate support from the property/casualty insurance industry, but is being given a thumbs-down by the life industry.

The revised bill would provide pre-emption authority for home state regulators in terms of licensing, examination and product approval.

It would also eliminate the so-called “partnership” system in the current versions that would have created a federal office to coordinate insurance regulation with state officials.

Under the bill, Congress would establish certain “prescriptive standards” that state regulators would have to meet by a certain date, according to one lawyer who has seen the draft bill.

State regulators would have to execute these standards or face certain sanctions, the lawyer said.

It is being prepared for presentation to Reps. Mike Oxley, R-Ohio, chairman of the committee, and Richard Baker, R-La., chair of the panel’s Capital Markets Subcommittee.

A panel spokesperson confirmed “that there has been some redrafting,” but cautioned that no final decision has been made as to whether it will be introduced this year.

But an industry lobbyist familiar with the deliberations said the intent is to have it introduced this year.

Several lobbyists familiar with the redraft said they believed the current draft of the streamlined bill is likely to undergo extensive changes before the bill is introduced.

a recently formed group called Agents for Change, which consists primarily of life agents who are interested in regulatory reform,

“Moving to jump start the SMART bill and streamline it proves what we have known from the beginning — this policy proposal is fatally flawed,” said Peter Ludgin, newly appointed executive director for Agents for Change.

“Insurance agents and brokers want the option of being regulated by the states or the federal government,” Mr. Ludgin said. “It is as simple as that. This is about efficiency, speed to market, servicing customers across state lines, licensing hassles, competition in the marketplace, and ultimately, what is best for the consumer.

“Customers should not have to forgo their current relationships and seek a new insurance agent every time they move or open a business across state lines,”

At the same time, reflecting the fact that the property/casualty industry is more prepared to support SMART than the life industry, Joel Wood, senior vice president for government affairs at the Council of Insurance Agents and Brokers later added that, “I’m extremely confused as to why Agents for Change would call the SMART proposal flawed, and I say that as a supporter of the Optional Federal Charter.”

Wood said the SMART draft “would specifically address — and resolve — all the regulatory problems for agents and brokers in the surplus lines and licensure arena.

“Those are the two principal interfaces of agents and brokers with the regulatory processes, and any reform in those areas is greatly welcome,” Wood said. “I, for one, will follow the lead of Chairman Baker in supporting whatever approach he chooses to resolve these issues and insurance modernization in general.”

A packed hearing on the growing use of life insurance by investors brought together CEOs, state insurance commissioners, the life settlement industry, producer groups, institutional investors and consumer advocates in testimony that both appealed to the need to stay focused on the insurable interest of a policy as well as argued that a consumer should be able to use an asset to its best advantage.

A cross-section of over 250 industry attendees filled the May 3 hearing of the Life Insurance and Annuities “A” committee of the National Association of Insurance Commissioners, Kansas City, Mo. Nine insurance commissioners were present.

Life insurers are expressing growing concern over what they say is the growing practice of investors who are financing the purchase of life insurance contracts largely from wealthy, older consumers with whom they have no insurable interest.

Repeatedly, company CEOs as well as Frank Keating, CEO of the American Council of Life Insurers, Washington, argued that the industry faces the loss of public confidence, and the loss of favored tax treatment for contracts. They argued that the loss would come at a cost to consumers.

During testimony, insurers noted on several occasions that they did not oppose life settlement contracts, contracts that were already in existence. It was the purchase of contracts that did not already exist for investment purposes that they opposed.

North Dakota Insurance Commissioner Jim Poolman said that regulators will start work to better regulate settling policies and that possible solutions will start to be discussed during the summer NAIC meeting.

“I think that there is consensus that premium financing with the intent to settle is something that we absolutely have to address,” Poolman said following the hearing. Among the options that will be looked at is a five-year moratorium on the settlement of a life policy once it is purchased, he said.

“The concept of insurable interest is really key,” said New York Superintendent Howard Mills of the proceeding. New York co-hosted the event, titled ‘Premium Financing of Life Insurance, Life Settlements, and the Relationship with State Insurable Interest Laws.’

New York has already tightened the definition of insurable interest and the NAIC should consider steps that would do this nationally, he added.

The New York department’s general counsel issued guidance in December 2005 which found that in a particular case under review, premium financing was used to help buy policies for resale rather than for the insured’s benefit.

Seymour Sternberg, chairman, president and CEO of New York Life Ins. Co., New York, started the day of testimony, declaring that stranger-owned life insurance is a “contrived transaction designed from the start to get contracts into the hands of speculators.”

Premium financing differs from life settlements because life settlements are contracts in which the insureds no longer have a need for the insurance while Stoli contracts are contracts initiated at the behest of investors.

Sternberg said that New York Life and other companies support changes to the NAIC’s Viatical Settlement Model Act but said that New York Life could also support a regulatory requirement creating a five-year moratorium on settling a contract after it was purchased.

Stoli “reduces human life to the status of gambling chips,” said Bruce Boyea, chairman, president and CEO of Security Mutual Life Ins. Co., Binghamton, N.Y. It exposes insurers and their customers to the potential loss of preferential tax treatment,

Jim Sinnott, executive vice president with Life Solutions International, San Diego, spoke for the Life Insurance Finance Association, Atlanta. He said that while LIFA did not defend every premium financing transaction, all such transactions should not be prevented. The reason, he explained is that there are legitimate uses for such transactions.

If, he continues, there is full disclosure for consumers and carriers and financing is not in fact disguised life settlements, then there could be legitimate use of the product and the whole issue of trying to decide intent could be minimized.

And, Alan Buerger, chairman and CEO of Coventry Capital, Fort Washington, Pa., noted among other points out that the life settlement industry paid out $4-5 billion over the last five years in excess of the cash surrender value that would be available under surrendered contracts.

Corporate-owned life insurance and bank-owned life insurance are examples of insurance contracts used as investments and sold by the insurance industry to investor third parties, Buerger added. “These are truly investments. They are sold and as employees leave, the insurance stays in force.”

William Newton, an NAIC funded consumer and executive director of the Florida Consumer Network, said that premium financing can be a useful tool for saving consumers money and added that consumers should be able to get better value for their policy if they can find it. Consequently, he said that he opposes the five year prohibition on settling policies.