Some life insurers are rewriting policies to restrict use of premium financing.
Gregory Serio, managing director in the Albany, N.Y., office of Park Strategies L.L.C., talked about that trend here today at a conference organized by the Life Insurance Finance Association, Atlanta.
Serio, the former New York state insurance superintendent, told an audience of about 250 attendees that some life insurers appear to be including restrictions on use of premium financing in “file and use” policy forms rather than in forms that require approval from state insurance commissioners.
One large insurer has added a “public policy” provision that talks about the need to protect the interests of other policyholders, Serio said.
Some insurers’ policy provisions appear to be putting premium financing in a category of “nefarious activities,” Serio said.
When policy language starts to remove the presumption of innocence from regulators’ minds, that can have a chilling effect, Serio said.
Many efforts to prevent use of premium financing are aimed at applicants over age 65, according to Larry Anders, chief executive of Summit Alliance Companies, Dallas.
Anders cited the example of a life insurance contract that asks both the agent and the general agent to certify that there is no intent to use premium financing to settle a contract. The provision creates a “tremendous liability” for those making the certification, Anders said.
The company that included the provision in its contract has a staff attorney monitoring every single transaction involving a client above age 65 to see if premium financing is involved, Anders said.
Agents who want to make sure that they are participating in legitimate financing transactions should consider a number of matters, such as whether a deal gives the contract holder a real choice about whether to sell the contract, according to Gary Brecka, chief executive of Life Asset Group L.L.C., Miami.
“The question of what is a legitimate premium financing transaction is the most important question today,” Brecka said.
Larry Simon, chief executive of Life Settlement Solutions Inc., San Diego, said detecting use of premium financing can be difficult.
In some cases, firms are creating “stealth premium finance” programs in trusts, and then selling the trusts, Simon reported.