Consumer advocates told regulators there is a place for a secondary market of life insurance policies.
A secondary market had made other markets such as the national mortgage business more vibrant and it will make the insurance market healthier, too, says Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas and an NAIC funded consumer representative.
The remarks were made during the consumer liaison meeting at the summer meeting of the National Association of Insurance Commissioners here, as organizations including the American Council of Life Insurers, Washington; the Life Insurance Finance Association, Atlanta; the Life Insurance Settlements Association, Orlando, Fla.; and the Life Settlement Institute offered their suggestions for change as regulators contemplate changes to the Viatical Settlement Model Act before the NAIC’s Life and Annuities “A” Committee.
Jim Poolman, North Dakota insurance commissioner and chair of the “A” Committee, said the committee would compare the trade group proposals and continue to consider the possibility of a 5-year moratorium on the settlement of life insurance contracts.
In explaining why he thought a secondary market is good for consumers, Birnbaum pointed to the mortgage market, where the secondary market has brought in more capital. Of particular importance is that it would address “the monopoly situation” that he said currently exists. The secondary market can offer a “competitive option” to nonforfeiture and surrender values that would be available under the contract, he added.
The speculator-initiated life insurance was a subset of the secondary market that “is certainly not something I would encourage and would probably discourage,” Birnbaum said, but he added that stifling the secondary market would hurt consumers.
Limiting the sale of policies and restricting premium financing don’t help consumers, according to Birnbaum. Insurers had no problem with premium financing when it involved single-premium credit insurance, he added.
Aggressive sales practices by life insurers with high lapse rates are causing arbitrage opportunities that might go away if those assumptions were not made, he continued.
Bill Newton, a consumer representative with Florida Consumer Action, Tampa, Fla., said he has seen lapse rates of 30% or higher and that by addressing this issue, “draconian” restrictions on policies could be avoided.
Michael Lovendusky, an ACLI representative, said the ACLI’s approach was to define viatical settlements broadly to include “every imaginable transfer of a policy or the value of a policy” and then excluding legitimate transactions and transfers from the requirements of the model.
George Coleman of Prudential Financial Inc., Newark, N.J., said that the goal was to try to address premium financing at the time of issuance when a settlement is contemplated. Insurers are trying to avoid instances where these plans are pitched to wealthy individuals, who get 2 to 3 free years of insurance, a potential kicker or fee, and repayment of the loan.