Life insurance and life settlement industry representatives sparred here over a new Viatical Settlement Model Act draft.

The draft was developed by Jim Poolman, North Dakota insurance commissioner, who is the chair of the Life Insurance and Annuities Committee at the National Association of Insurance Commissioners, Kansas City, Mo.

Poolman’s draft would let a policyholder who experiences a major life change, such as a divorce, sell a policy before the end of the usual 5-year “moratorium” period.

Life insurance industry representatives who spoke here during a Life Insurance and Annuities Committee session at the NAIC’s fall meeting attacked “stranger-owned life insurance,” while life settlement and consumer group representatives complained that the proposed 5-year moratorium would hurt consumers by killing the “secondary market,” or resale market, for life insurance policies.

Michael Lovendusky, a representative for the American Council of Life Insurers, Washington, said the ACLI and 3 other groups — the Association of Advanced Life Underwriters, Falls Church, Va.; the National Association of Insurance and Financial Advisors, Falls Church, Va.; and the National Association of Independent Life Brokers and Agents, Fairfax, Va. – have been supporting a proposal to require almost all life policyholders to keep policies 2 years before selling them.

But the narrower 5-year moratorium proposal in the Poolman draft is worth considering, Lovendusky said.

Birny Birnbaum, an NAIC-funded consumer representative and executive director of the Center for Economic Justice, Austin, Texas, argued that a healthy secondary market for life insurance policies is good for consumers.

A 5-year moratorium on settling contracts would kill the secondary market without solving the problem of stranger-owned life insurance, he said.

Instead of killing the secondary market, insurers should price products so that they can turn a profit without depending on the tendency of consumers to let contracts lapse, Birnbaum said.

Alan Buerger, chief executive officer of the Coventry Group, Fort Washington, Pa., said regulators can and should rely on existing laws concerning practices such as rebating and usury to stop any abuses of the life settlement processes, including settlement deals arranged before consumers buy their life insurance policies.

Coventry is working with state legislators to develop better, more uniform laws for the secondary market, but, in the end, disclosure is the best protection against abuse, Buerger said.