Two issues that will be discussed this week when the National Association of Insurance Commissioners meets for its fall meeting in St. Louis are a new draft of the Viatical Settlements Model Act as well as the procedure for establishing product standards for the Interstate Insurance Product Regulation Commission.
In the latest effort to reach consensus on changes to the viatical model, North Dakota Commissioner Jim Poolman, who also chairs the NAIC’s Life & Annuities “A” Committee, released a 39-page draft of a revised model.
Key points in the model include a ban on settling a life insurance contract for 5 years after contract issuance or at any time prior to the application or issuance of the policy.
The draft leaves exceptions for circumstances such as the death of the viator’s spouse or divorce of that spouse.
The model also includes disclosure requirements for viatical settlement brokers, viatical settlement providers and life insurance companies.
Poolman says the draft is a starting point for discussion that he hopes will move the model out of “A” committee to executive and plenary by the end of the year so that it can be ready for commissioners and state legislatures at the start of 2007.
The initial reaction of insurers and producers is support for the concept, says Michael Lovendusky, associate general counsel with the American Council of Life Insurers, Washington. Lovendusky says industry support includes the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors, both in Falls Church, Va.; and the National Association of Independent Life Brokerage Agencies, Fairfax, Va.
Lovendusky notes that the draft helps prevent inappropriate life settlements while offering protections to a broader group of consumers including those consumers facing divorce.
“It is a step in the right direction. There are many good elements here,” says Doug Head, executive director of the Life Insurance Settlements Association, Orlando, Fla. The one point that LISA would disagree with, says Head, is the limitation on the sale of a contract outside of the contestability period.
The 5-year moratorium on selling a contract is still “troublesome,” says Scott Cipinko, an industry interested party. However, he notes that the draft does include interesting points such as clarifying the definition of premium financing.
But Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, and a NAIC funded consumer representative, maintains that “it is a terrible proposal. It not only takes away fundamental consumer rights of ownership and disposition of policies,” but also does not address the issue of stranger-owned life insurance.
It will be “a nuclear bomb for the secondary market,” he adds.
One of the things that is a concern, according to Birnbaum, is that “regulators are letting insurance companies kill the secondary market without a policy debate. It reinstalls a monopoly for insurers.” Birnbaum says it is a matter of product pricing that incorporates lapse assumptions. If policies do not lapse, those assumptions create a problem for insurers, he notes.
As a point of reference, Birnbaum notes that insurers are trying to include wording in product standards for the Interstate Insurance Product Regulation Commission that would allow insurers to ask consumers whether they had ever considered a life settlement prior to purchase of a contract.
Insurance representatives have stressed that they need to ask such questions in order to properly underwrite contracts.
The issue of procedure was one raised during a discussion by the interim Management Committee of the commission.
During a conference call, the commission voted to expose one draft rule for establishing public inspection procedures and copying of information as well as product standards for flexible premium adjustable life, joint last to die survivorship flexible premium adjustable life, flexible premium variable adjustable life, joint last to die survivorship flexible premium variable adjustable life, and modified single premium adjustable life.
Birnbaum says in a Sept. 4 letter to the commission that the proposals under consideration were developed in non-public meetings and that with their release only 2 business days before a conference call, there was no real interest in public comment.
In his letter, Birnbaum also notes that the rule on public access fails to declare that filings to the commission are public information upon filing.
In a letter of resignation dated Aug. 31, Bonnie Burns, a consumer advocate and a training and policy specialist with California Health Advocates, Scotts Valley, Calif., wrote that one of the reasons for her resignation was that views of consumer advocates “have generally not been well received” by commission members. Another reason she cited was “some meetings have not been open to public participation and decisions made in those meetings are later voted on during conference calls without much discussion, or adequate time for review and comment.”
Burns proceeded to say that she has a “long record of supporting state-based regulation and opposing federal regulation when it could deprive consumers of their rights or effective regulatory oversight.” But, she continues, “based on my experience representing consumer interests before the commission, I believe the compact is failing to protect consumer interests.”
In her resignation letter Burns also noted that the time commitment needed to effectively offer consumer representation was not something that she would be able to provide. In order to offer such representation, she wrote, several full-time consumer representatives would be needed.