New NAIC Viatical Model Draft

One of the specific areas that will be addressed is the “disclosures and affirmation” section of the model, he continues.

LISA has opposed a 5-year moratorium on the settlement of contracts as a provision that would take away consumer rights.

Two points that need to be discussed are the definitions of premium financing and life settlements, which are “a little narrow,” says Scott Cipinko, of the law office of S.J. Cipinko, Atlanta, who represents the Life Insurance Finance Association, Atlanta.

Another point Cipinko raises is about the need for a 5-year moratorium on the settlement of a contract. The ability to settle a contract is “a property right just as with anything else,” he notes. “If a house could not be sold for 5 years [after its purchase], you would have a revolt on your hands.”

Cipinko says the draft represents a lot of work on the part of regulators, but adds that the moratorium does not address the issue of investor-owned life insurance.

What he says needs to be developed is an insurable interest law similar to the one that he says Georgia has on the books. “The issue here is insurable interest and not viatical settlements,” he adds.

Birny Birnbaum, executive director of the Center for Economic Justice, and a NAIC funded consumer representative, concurs.

“I continue to be puzzled by the insistence on the 5-year provision. It is pretty clear that it hurts consumers who will not be able to sell a product in the secondary market.” Even though there are some exceptions, such as the loss of a job or a divorce, it is “still a pretty radical extension of the 2-year provision which in and of itself took away consumer rights.”

And, according to Birnbaum, it is not addressing the spin life, or speculator-initiated, problem. Additionally, Birnbaum says, there has been no evidence presented to indicate whether the practice is widespread. Rather, he continues, what has been presented are “company memos on how spin life is threatening company profitability.”

The reason that profitability is threatened, according to Birnbaum, is that too many companies have relied on lapse supported pricing, which he says offers consumers little value if they surrender a contract. Consequently, consumers saw a way to receive better value for their contracts, he adds.

Birnbaum says his concern is that if the model is adopted by the NAIC, it will become a standard in 28 states that are part of the Interstate Insurance Product Regulation Compact Commission.

NAIFA, Falls Church, Va., is working with ACLI and AALU on an industry response to the latest draft, says Ron Panneton, senior counsel for law and state relations and Gary Sanders, senior counsel for law and state relations with NAIFA.

NAIFA would like to stick with Poolman’s essential approach, according to Sanders, but would like to further close any openings that would permit stranger-owned life insurance to be sold.

Panneton says NAIFA supports the 5-year moratorium for sales that apply to the stated problem of STOLI. But, he continues, NAIFA would support lifting the 5-year ban for transactions that are not STOLI transactions.

In particular, those transactions are full recourse financing agreements and situations in which the premium is paid by the insureds, both he and Sanders say. For those products, after a 2-year moratorium, life settlements should be permitted, they say.