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.
Every broker has about $1,000 in underwriting costs, and a 7% cap on a $10,000 sale of a $50,000 policy would leave the broker with just $700 in commissions, saddling the broker with an operating loss of $300, an audience member said.
Spitzer’s action got the attention of life settlement industry professionals who attended the LISA meeting.
Regarding Spitzer’s suit, one conference attendee said, “There is an enormous elephant in the room, and it is Spitzer’s complaint.”
Spitzer rocked members of LISA in October by suing Coventry First in connection with allegations that Coventry secretly paid life settlement brokers to suppress competing bids from other life settlement providers.
Conference attendees said the life settlement industry should take a firm stand against the kinds of practices Spitzer described in the suit.
“Our market is the consumer,” said Kenneth Klein, CEO of Fair Market Life Settlements Corp., New York. “We have the most pro-consumer product since tissues.”
Life settlement firms should show the public that they have consumers’ interests at heart by making a statement about the Spitzer allegations, Klein said.
Anyone who conducts himself in an unacceptable way should no longer be a member of LISA, Klein said.
Philip Loy of AVS Underwriting L.L.C., Kennesaw, Ga., also called for a vigorous response.
“We as an association cannot sit here and do nothing,” Loy said. “We must respond in a way that when we stand before the [National Association of Insurance Commissioners], we will retain some level of credibility.”
Another issue that conference attendees raised was problems with life expectancy estimates. Too often, the estimators come up with life expectancies that “are lower than any reasonable methodology would produce,” an attendee said.
Other attendees countered that many of the low-ballers are not LISA members, and that sophisticated policy buyers either discard the estimates of the low-ballers or look for the average on an entire block of business.