Proposed New York life settlement legislation attracted attention here at a conference organized by the Life Insurance Settlement Association. In addition, New York Attorney General Eliot Spitzer’s suit against Coventry First L.L.C., Fort Washington, Pa., preoccupied many attendees.
Seth Lamont, general counsel for New York State Sen. James Seward, R-Oneonta, briefed attendees on possible changes to Section 4228 of the New York insurance law.
Officials are accepting comments about how the law might be updated.
Discussions about possible changes will start sometime in the next 6 months, according to Doug Head, executive director of LISA, Orlando, Fla.
“Obviously, we recognize the need for consumer options,” Lamont said. “That said, we want common sense regulation in which the rules of the game are defined and not fluid. We want to weed out potential abuses and do not want to [stop] legitimate transactions.”
Seward is interested in the insured’s safety, the effort to maximize the policyholder’s policy sale proceeds and an assurance that the insured is not unwittingly participating in a “manufactured” contract using premium financing, Lamont said.
Legislation could try to ensure that the client gets “top dollar” by improving alignment of the broker’s compensation with the interests of the client, Lamont said.
Legislation could peg broker compensation to the settlement amount, rather than the face value of the policy, with another possibility being a 7% commission cap, Lamont said.
The 7% cap might be too low, but it could be a starting point for conversation, Lamont said.
An audience member responded by arguing that every life policy ought to include a disclosure stating that the holder can settle the policy.
“If you were truly pro consumer, you would put a regulation in place stating that every time a policy lapses or is surrendered, a consumer loses,” the audience member told Lamont.
Some members in the audience said a low cap on commissions could shut sellers of smaller policies out of the life settlement market.