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Proposed 5-Year Ban Remains Sticking Point On Viatical Draft

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A 5-year moratorium on the right to settle a life insurance contract was the key point of debate among interested parties providing comment on a new draft of the Viatical Settlement Model Act.

The discussion, which took place during the Life Insurance and Annuities “A” Committee at the fall meeting of the National Association of Insurance Commissioners here, was a chance for interested parties to comment on a draft of the Viatical Settlements Model Act developed by Jim Poolman, North Dakota insurance commissioner and chair of the “A” Committee (see National Underwriter, Sept. 11, 2006).

The issue of settling a contract has become a focal point of debate as instances of life insurance contracts initiated by investors continue to surface.

For the most part, representatives of the life insurance industry and the life settlements industry maintained positions that were made during a hearing in New York this summer.

Life insurance representatives assailed the practice of stranger-owned life insurance. Representatives of the life settlement business said that imposition of a 5-year moratorium on the settlement of a life insurance contract would kill the life settlement market, as well as deny policyholders their property rights and reduce the value of the property they held in that contract.

Michael Lovendusky, a representative with the American Council of Life Insurers, Washington, said the ACLI, 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 Agents, had initially supported a 2-year moratorium but with a broad net covering most transactions. The 5-year proposal in the Poolman draft was a different approach that was worth considering, he continued.

Birny Birnbaum, an NAIC funded consumer representative and executive director of the Center for Economic Justice, Austin, Texas, said insurance consumers are well served with a healthy secondary market and that a 5-year moratorium on settling contracts would kill that market. Such a moratorium would not solve the issue of stranger-owned life insurance, he continued. What insurers need to do, according to Birnbaum, is to price products so that they would not rely on contracts lapsing.

Alan Buerger, chief executive officer of Coventry, Fort Washington, Pa., noted the opinion of many in the life settlement industry, saying that if there are abuses on the part of either insurers or life settlement companies, those abuses should be stopped. For instance, Buerger said that if someone is getting paid in a pre-arranged settlement, that would be an abuse. However, he noted that there currently are rebating, insurable interest and usury laws in place to prevent such abuses. Coventry is actively trying to seek better, more uniform legislation of the secondary market by approaching state legislators, he added.

Buerger says that disclosure is an important piece in preventing abuse. Strengthening disclosure was also a point supported by Brenda Cude, a NAIC consumer representative and a professor with the University of Georgia in Athens, Ga.


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