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Life Health > Life Insurance

Life Settlement Regulatory Proposals Continue To Make Waves

By Jim Connolly

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The discussion on how to curtail the sale of life insurance contracts initiated solely for the purpose of resale, which roiled the industry last year, will continue this year on several different fronts.

On Jan. 5, the National Conference of Insurance Legislators, Troy, N.Y., was to hold an informational conference call so that legislators could gather comments before determining actions to be taken.

An NCOIL subcommittee is looking at the issue to determine whether it should revise the current model or develop a new one to reflect changes in the market since NCOIL’s previous model was adopted, says Susan Nolan, NCOIL executive director.

A model developed by NCOIL and another developed by the National Association of Insurance Commissioners are currently available for state enactment. The NAIC model has been adopted totally or in part by the about 30 states, Nolan says. NCOIL’s model was not adopted as widely, she adds.

NCOIL, according to Nolan, will need to decide whether to revise its model, develop a new one or issue a resolution opposing policies bought solely for resale. NCOIL could also decide to work on a model as well as issue a resolution, she explains.

The NAIC has been revising its Viatical Settlement Model Act, and changes have been adopted through its “A” Committee. The revision could be finalized during the organization’s spring meeting in March.

The NCOIL request asks for comment on the current draft of the amended NAIC model awaiting adoption.

The 4 areas of comment the request focuses on are: the definitions of ‘fraudulent viatical settlement act’ and ‘viatical settlement contract’; license and bond requirements; disclosures to viators and insurers; and prohibited practices, particularly the 5-year ban on settlements.

Among those who will be participating in the NCOIL conference call are: the American Council of Life Insurers, the Life Insurance Finance Association, and Life Insurance Settlement Association.

Additionally, the ACLI, the National Association of Insurance and Financial Advisors and the Association for Advanced Life Underwriting, as well as the National Association of Independent Life Brokerage Agencies, will submit a joint letter expressing support for the NAIC model, says Whit Cornman, an ACLI spokesman.

Doug Head, LISA’s executive director, also plans to speak during the NCOIL call. Head says his organization opposes cases in which, from the very start of the contract, there is an agreement to sell the contract, a kickback or an improper agreement between a buyer and a contract owner. “We don’t want to see an improper act,” he says.

However, Head also thinks there should be a disclosure informing new contract holders that they have a right to know what the value of their contract would be if it were settled.

He also says that to extend a ban on the settlement of contracts beyond 2 years after the initiation of the contract is an infringement on the property rights of contract holders. The 2-year ban fits in with the traditional period of contestability, Head says.

Of a ban beyond 2 years, Head maintains that “in my mind, they [insurers] are weakening their product.”

Head says his organization will ask the NAIC’s executive committee to defer action on the changes to the NAIC model and to send it back for further work. He notes that the NAIC has many new commissioners who would not be up to speed on the issue at the March meeting.

He expressed surprise that individual producers had not gotten up and told regulators how they use life settlements in their work and that NAIFA, which represents producers, is taking the position it now holds.

“NAIFA gets rolled all the time. I don’t think their members know what is being said in their name,” says Head, who maintains that the focus of many of these producers is on their work in the field.

At press time, calls to NAIFA’s press representative, Jim Edwards, were not returned.

Scott Cipinko, LIFA executive director, said individual producers and financial planners need to be part of the discussion to explain how the product works.

The government relations committee of the Financial Planning Association, Denver, is currently looking at the issue of life settlements but has not formed a position on the issue yet, says Brad White, FPA’s director of public affairs.

LIFA’s Cipinko also says there needs to be a discussion about changes in the market and the NCOIL call should start with this. There are legitimate premium financing needs for people who have large illiquid portfolios of assets and want to protect those assets with insurance, he says.

The issue of investor-owned life insurance will not be stopped until the same disclosures that are required of individual contract owners to inform a company that the contract is going to be settled are also required of trusts, according to Cipinko.

The amended NAIC draft that will be before executive and plenary in March does not include disclosures of a life settlement if it is included in a trust.

“It is helping to perpetuate IOLI by not addressing the trust issue,” he says.

In addition to work at the NAIC and at NCOIL, New York lawmakers led by state Sen. Sen. James Seward, R-51st senatorial district, and chair of the state senate insurance committee, will begin working on legislation overseeing life settlements. Those involved expect work to start in February and to be finalized by mid-year.

During a recent meeting of the Life Settlement Association, a Seward representative cited 3 objectives: 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.

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