State legislators are promising a thorough look at the issue of life settlements as they weigh what steps to take to curb the sale of life insurance policies specifically purchased only to be resold again.
Susan Nolan, executive director of the National Conference of Insurance Legislators, Troy, N.Y., said a first discussion on Jan. 5 included the full NCOIL subcommittee of 7 legislators and 25 interested parties.
NCOIL had asked for comment on the National Association of Insurance Commissioners’ draft of its amended Viatical Settlement Model Act. That draft is expected to be reviewed by the executive committee and plenary of the NAIC during its spring meeting in March.
State representative Ron Crimm, R-Louisville, Ky., one of the participants on the call, says he is viewing the issue as both an NCOIL representative and as a producer with over 40 years’ experience.
Crimm says that as a producer it seems as if a lot of paperwork would be created by requirements in the model.
Another point he says needs more discussion concerns bond requirements for producers in the draft. If a producer has a couple of million dollars in errors and omissions coverage, Crimm wonders why a bond requirement would be necessary. Why can’t there be a requirement for one or the other? he asks.
The current NAIC draft states that a commissioner can issue a license if, among other things, it is found that a viatical settlement provider has “demonstrated evidence of financial responsibility” through either a surety bond or a deposit of cash, certificates of deposit or securities, or a combination, in the amount of $250,000.
The NAIC draft model authorizes recovery using the surety bond on behalf of any person who has “sustained damages as a result of erroneous acts, failure to act, conviction of fraud or conviction of unfair practices by the viatical settlement provider or viatical settlement broker.”
Crimm says there are parts of the draft model that appear to be fine including some of the definitions addressing fraud.
But on the issue of a 5-year ban on the settlement of a policy, he says, “I want someone to tell me why this is necessary.” Crimm adds that he would also like to understand how big a problem investor-owned life insurance really is. “I’m not sure John Q. Agent really understands the issue and how big it really is.”
Mike Humphreys, NCOIL’s director of legislative affairs and education, said the Jan. 5 discussion covered the NAIC draft’s definition of fraud, which would include situations in which a viatical settlement broker or a provider fails to “fully disclose to an insurer a plan, transaction or series of transactions related to the business of viatical settlements at any time during the first five years after issuance of the policy.”
Humphreys said state representative George Keiser, R-Bismarck, who is heading up NCOIL’s subcommittee, pointed out that the Life Insurance Settlement Association, Orlando, Fla., was “advocating in Section 8 [of the draft] for insurers to be required to disclose to a policy owner the option of selling a policy in the secondary market, while in Section 1(c) [of the draft] was opposing a provision that would require a viatical settlement broker or provider to disclose to an insurer a plan, transaction or series of transactions related to the business of viatical settlements.”
Humphreys says Keiser “suggested that LISA was trying to have it both ways in a competitive marketplace by seeking further disclosures from insurers, while being unwilling to disclose to insurers certain settlement plans.”