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Life Health > Life Insurance

An Industry Confronting Struggles On Many Fronts

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The second roundtable of life settlement executives sponsored by National Underwriter Life & Health took place on March 23. This was after the spring meeting of the National Association of Insurance Commissioners, when an amended version of the Viatical Settlement Model Act was put on hold, but before an April 2 conference call of the NAIC Life & Annuities ‘A’ Committee, which voted to approve a model draft with additional amendments.

Doug Head, executive director of the Life Insurance Settlement Association, and Steve Piontek, editor-in-chief of National Underwriter, were co-moderators.

STEVE PIONTEK: Good afternoon. Since the last roundtable in October a lot of things have happened in the business. So I think probably the best way to start the discussion would be to maybe go over what is on top of everyone’s mind from the last month or so. Maybe we should start with what happened at the NAIC?

BRYAN FREEMAN: Why don’t we start in NAIC in December and come forward, because in the last three and a half or so months a lot has happened.

It was very interesting what happened there. And in the words of multiple regulators afterwards, they had never seen so much anger in one room in their history of coming to NAIC meetings. Because, I think, in the words of many other people, and I’m included in that, basically we saw something happen where a whole lot of bad things were sort of slammed down our throat and the attitude in the room reflected that.

DOUG HEAD: Do you have a sense that that process was full and open and got to the issues or no?

BRYAN FREEMAN: It wasn’t open at all in my opinion. I was around in the days when we worked through the viatical settlement working group and actually came up with a consensus product where all views were aired. In this case that was not what happened. As matter of fact, unfortunately, many times when people tried to express their opinions, they were told they weren’t to give their full testimony and to make it an abbreviated version and hit the highlights. So with that kind of response, it’s hard to air the issues.

DOUG HEAD: Steve, are you aware of new elements that were introduced to the NAIC process late?

STEVE WASHINGTON: There were actually a lot of changes that were introduced in the draft, although this was heatedly denied and as a result we never got an opportunity to comment on those changes in a meaningful way.

ROB HAYNIE: And look at the sponsorship of those amendments. NAILBA, AALU, NAIFA and those other groups that had no input, no dialogue. I mean, in conversations we had at the International Forum in January, every producer to a man was unaware of any of [the changes from the December NAIC meeting.]

It was brand-new information to them, yet the associations were on the record as in full support of everything, everything without question, of all the amendments.

MICHAEL COBEN: The leadership of those associations took the liberty to take action without seeking the response of their constituents. That’s the issue. So the constituents are being led by people that choose to make decisions on their behalf.

DOUG HEAD: Wouldn’t the leadership be able to argue that that is their role, that they ought to be making those decisions?

MICHAEL COBEN: I think they have the responsibility to communicate to their constituents.

CRAIG SEITEL: They have to present to their constituents what the subject matter is and let them arrive at the conclusion that is best suited for them.

BRYAN FREEMAN: In an open and unbiased way. I mean, if you present something in a very biased way, without the full facts I can see how the constituents may buy into it, but when they really know what it means and you have real dialogue, I found that agents don’t buy into it. As a matter of fact, when they really find out what it means, you have things like what happened in Georgia where NAIFA-Georgia came out against it.

Then they begin to have a balanced point of view about this. And, furthermore, how can an agents’ group advocate that their producer must have a $250,000 bond in every state to do settlements? How does that represent your constituents? I can’t rationalize that in my mind.

DOUG HEAD: There was never really a definition of the problem that we were trying to get. Are we properly defining the problem? And has the NAIC identified the problem clearly or is it still kind of fuzzy?

SEAN MICHAELS: Well, there is no doubt that we need to take steps as a group to help define the problem, because if you read this STOLI Alert and you look at the three groups that stand behind it, publishing it, the AALU, ACLI and NAIFA, there is a lot of incorrect information in there. And you have to ask yourselves how much of it is a mistake or is there something political going on, which either amounts to negligently failing to report the facts or intentionally deceiving people.

I think it’s very important that both LISA and LIFA came out with their rebuttal to the STOLI Alert, just to help people out there in the general public understand what the true facts are. Because I personally have a problem when I see a group like NAIFA put their logo on something like this and these aren’t even the facts. How in the world are they supposed to represent their membership?

RAMIRO RENCURRELL: Investor-originated life insurance, that’s the problem; not stranger-owned life insurance. As I said in the last roundtable, all secondary markets are stranger-owned life insurance. It’s the investor-originated that’s the problem, and even with that they are confused.

DOUG HEAD: Can we define STOLI clearly? What is that?

STEVE WASHINGTON: Probably a bunch of things that we didn’t get into at NAIC. Up front inducement offered by investors and policy applicants, guaranteed payments to the owners, loan term, so they have no choice at the end of the loan to relinquish the policy to satisfy the loan.

CRAIG SEITEL: What we really need to define is what those result in and that is, it compromises insurable interest.

RAMIRO RENCURRELL: It is life insurance issued for the sole intent to be settled.

MICHAEL COBEN: I think the common thread of all those concerns are that you are basically saying it’s a settlement from inception and that breaks all the current regulations and laws that we embrace on a state level. So I think that’s a defining core.

CRAIG SEITEL: Right. And the challenge is how do you determine that? That’s not an easy challenge. It’s not an easy thing to define. It’s up to us to give guidance to NAIC and the legislature.

ROB HAYNIE: Let’s see if I can bring clarity to this. What they have done is they have taken all the elements that we just exposed and what they are trying to define and thrown it into one lump sum, thrown the baby out with the bathwater. A way to kill it all. It’s the only thing they have. Because if you can tell the story and manipulate the facts, like they have done in the STOLI Alert, they can get people thinking in a different direction, other than the way that they should be thinking, which is the truth, so that’s what they’ve done.

It’s up to us as an association to define what it is they are trying to define and make it easier for them to get rid of what it is they are trying to get rid of, but not get rid of everything.

RAMIRO RENCURRELL: Rob, I would like to add to that. As an association, we have always thought that this cannot be resolved in settlement law.

This has to be taken back and resolved in the underwriting departments of the life insurance carriers and the definitions and regulations that govern insurable interest and we have said it more than one time. We are more than willing to work with the ACLI and all of the other associations and NAIC and NCOIL, which have instructed us to work on this together with the ACLI, to fix this problem and to help them, but the problem is not going to be fixed in settlement law.

DOUG HEAD: So the proposal now on the table, at the NAIC, how does it address the problem? Does it?

RAMIRO RENCURRELL: It walks around it and targets the settlement market, the secondary market for life insurance.

STEVE PIONTEK: There are many models passed by the NAIC that are not implemented by the states. The real battle is in the state legislatures.

ROB HAYNIE: Let’s think about our industry as a whole. We are now a State of Florida licensed producer. As a licensed producer I have to disclose to the settler, all the options that are inferior that they can take advantage of other than a million six. They can surrender for 600. They can take a loan. They can exchange. Yet, when that same person goes to do any one of those inferior options it is not incumbent upon anybody to introduce them to the fact that there is a life settlement market–the superior option. So right there we have been picked on and we continue to be picked on.

MICHAEL COBEN: The industry is so fixated on disclosure. What would be interesting to say is that if they really are interested in disclosure, to put another box saying the average secondary fair market value of this policy is X and I’m aware of it.

DOUG HEAD: Is that something that can be addressed in settlement law or does it need to be addressed in another area of the law or does it need to be addressed like insurance company practice?

BRYAN FREEMAN: This may be one of those places where it’s addressed in unfair trade practice.

ROBERT FINFER: I would like to add something. As a broker sitting on the desk, I’m sure Rob, you get this too, when something is issued like this STOLI Alert, our phone rings excessively by all the agents and essentially what something like this does is it’s designed to create fear in the agent, especially the agents that are specifically involved, senior agents with 25, 30 years plus careers, who are best in the position to assist these clients. And it sets us back tremendously with these agents for a time until they eventually, hopefully, come back around and realize how important our industry is to their senior clients.

BRYAN FREEMAN: One thing I think is important, and I know that everybody here shares this thought, is that I love the insurance companies. I don’t want to do anything that hurts them in any way. As a matter of fact, I believe our product enhances their product and that indeed it gives the public another reason to buy a product they, frankly, might not buy without knowing about the settlement option.

MICHAEL COBEN: There is no doubt, when we educate advisors on this option, and now it’s being used as a traditional planning option, that clients now realize that this is a real value to life insurance and it enhances the overall value of insurance in general. And they’ll buy more insurance because of the greater understanding of it.

DOUG HEAD: One of the ideas that emerged, and if I can flash forward to the NCOIL hearing in Savannah, is wouldn’t it be possible for insurers to write two kinds of policies, one that could be exchanged on the secondary market and one that was not exchangeable on the secondary market and cannot be sold and to price them accordingly. Does that idea have any sense to it or is that just?

MICHAEL COBEN: It’s almost akin to convertible and nonconvertible term insurance, which they are able to write.

ROBERT FINFER: Doug, I will steal from your presentation at the last LISA conference. I think you said it best when you said that the insurance company had the best position to create this market and run this market, yet they don’t have any strong desire to do so.

DOUG HEAD: Are there options in terms of insurance company practice here to address this? We’ve seen a lot of earnings calls, where the insurers have talked about their efforts to address STOLI. This is an entirely different place to find information outside of the regulatory arena. The earnings calls are fascinating.

MICHAEL COBEN: I think it comes down to two issues. One is are they really concerned about the protection of the basic principles of insurable interest and property rights or are they really looking at bottom line performance?

I think you have two things going on simultaneously. They are pushing away from really saying the issue for them is bottom line performance more so than the preservation of the insurable interest. They are in a difficult spot. We have already seen responses from carriers who raised costs of insurance at certain ages, eliminating the ability to issue policies at certain ages. So they do have a way of self-policing the earning or risk issue on their part, but that has a positive or negative impact on their line of business and they have to adjust it.

LARRY SIMON: At the end of ’05 we saw the carriers say no more premium finance and they were very effective just on their own. Now, of course, you know, creative people came up with new ways to get around it, but the insurance carriers know what’s going on and they choose not to come down on it for various reasons.

CRAIG SEITEL: Well, many of the carriers that originally got out of the market are now back in.

LARRY SIMON: Of course. But they are not admitting it.

CRAIG SEITEL: And it’s because of earnings.

LARRY SIMON: Of course.

BRYAN FREEMAN: Earnings and executive compensation based on premium production. The interesting thing about insurers is that they don’t agree among themselves, but you have a subset of companies who have decided this is the way it’s going to be, saying we are the white hats and if you guys speak up you will be the black hats. So all the people that won’t speak up are doing business anyway.

And as one of the life insurance representatives at NCOIL conference told me, ‘we need a law because we can’t police our own company. So we need to tell our companies what they can and can’t do.’ And when I asked him, ‘why can’t you deal with it among your own people?’ He said ‘we can’t.’

SEAN MICHAELS I hear agents and financial advisors all the time saying premium financing doesn’t exist anymore when they ask us those questions right on the application about intent to sell a policy right away. People answer them honestly. And when you look at the earnings calls and see the dramatic drop in business, it looks like the carriers are doing a great job policing this themselves.

And from my perspective, not only as an attorney but as an agent, these are usually high net worth seniors that are involved in these transactions. High net worth seniors don’t need to be committing fraud on life insurance applications. They don’t and they won’t. I think the carriers have gotten some good results out of the business decisions that they’ve made to stop this business.

When I see what the NAIC is putting on the table, concurrently with what the carrier is already doing, I wonder who is protecting the consumer? Where is the senior going to get protection of their fundamental property rights, their ability to use financing, if it works with their estate planning? And to really get all of the information that’s available, so they can make a good decision?

I don’t really feel that the NAIC model is pro-consumer with respect to the actual seniors who are buying this insurance.

MICHAEL COBEN: I think part of the problem, as related to premium finance, is that the carriers were getting inundated with all types of programs. And they couldn’t ascertain the difference between one versus another. So rather than spending the time and energy and money to differentiate one program from another, they masked it with the legislation. So if you go back and put pressure on the carriers to do a little more self-policing and to be aware of the market, and spend the time doing that and then I think a lot of the problems will be resolved.

BRYAN FREEMAN: There are two other issues that came up at NAIC, that I think are worthy of talking about and one is when asked about disclosure of the settlement option, as we were speaking of a few minutes ago, instead of saying yes, consumers need to know all their options, we were told that we are not in the business of advertising the settlement business. Well, then maybe we shouldn’t be in the business of disclosing to consumers that they can take a loan or withdrawal. It absolutely makes no sense to me.

DOUG HEAD: Except that the argument is that the disclosure doesn’t belong in settlement law. That it belongs somewhere else in the law. Where might that be?

BRYAN FREEMAN: Maybe it ought to be in insurance policy forms law where they have to disclose it. The other thing that was very interesting to me is when asked about stealth programs we are told those are okay. You can hide it. The chairman of the A committee said you need to follow the law and we are not going to do anything about the stealth program.

DOUG HEAD: What’s a stealth program?

MICHAEL COBEN: A stealth program would be investor-initiated program that is done under the cloak of the trust and the individual has the right to sell the beneficial interest within the trust. It’s very hard for a carrier to understand it, because they are looking at a basic trust, which is a common estate planning tool. Unless they dig into the trust and look at the subtrust and have another subtrust then look at the articles that allow for the sale of the beneficial interest, it’s very difficult to ascertain.

DOUG HEAD: That problem is not addressed at all in the NAIC?

SEAN MICHAELS: It is heavily addressed on a business side by the insurance companies. It’s very common these days for insurance companies to ask for every single page of the trust agreement. It didn’t used to be that way a couple of years ago.

RAMIRO RENCURRELL: Can you not sell the interest in the trust without ever going back to the insurance company? That’s the case and that’s what we are saying as following out of the NAIC proposal.

LARRY SIMON: Right now the insurance carrier sends a questionnaire: Is the policy going to be sold? No. Is it going to be premium financed? No. Well, it may not be premium financed. It goes into the trust and as soon as the trust owns it the trust is sold or the beneficial interest is sold. So you didn’t lie in the application. I wouldn’t want to be against a good prosecutor on the other side of that, but that’s what’s happening.

So if we can extend contestability in all the states for two years and somehow control the trust transfer, then a lot of this stuff goes away.

BRYAN FREEMAN: So those of us who do things above board in the light of day get penalized while those who decide to hide it get a pass and actually hear what they are told in open forum with 600 people in the room, to go ahead.

ROBERT FINFER: I think one of the problems that we face is we have done such a wonderful job of educating agents and carriers about the life insurance settlement business that they found a new way to come back against this business with the life insurance finance products. I think we need to center our time and attention on our product, the life insurance settlement product, which is a great product and most consumer friendly product that we have available for consumers.

ROB HAYNIE: Going back to earlier points of disclosure. As a life settlement company, we are required to disclose a proposal for compensation. We are required to disclose all the offers, counteroffers, etc., and all, as I mentioned earlier, all the inferior options. Someone with the same license that I hold selling life insurance does not have to disclose his or her alternatives, only has to disclose the one offer that he or she feels that they need to tell their client. Usually that’s the one with the highest commission and no disclosure whatsoever of any of the superior options that exist. Yet we are both regulated by the Department of Insurance. Same people. That’s getting back to the point about our product. We are allowing the same people to govern us and them under separate rules, when we have a better option for the consumer. And we are not allowed to do it and they are actually forbidden to do it. In some cases we’ve seen the field notices. You mention the word life settlement, you are fired.

BRYAN FREEMAN: Well, another thing that’s interesting about the policies as an insurance agent is, given the fact that 40% of our policies lapse within 5 years, there are obviously a lot of agents selling policies to a lot of people who don’t need or want the policy. So suitability is probably an issue, along with commission disclosure and other items on the primary market.

And I think if agents are aware regarding commission disclosure, and I’m not saying I’m against commission disclosure, I’m just saying if agents are aware that they are going to have to disclose commissions on settlements, how long do they think it will be before they have to disclose commission on life sales? And 125, 130 percent on first-year commission on life insurance sure beats the daylights out of the kind of commission you get.

RAMIRO RENCURRELL: I don’t see the difference between a primary market and a secondary market disclosure. It should be the same.

STEVE WASHINGTON: I wanted to get back to what is in the Act which will harm life settlements, which is a number of provisions, you know, just on basics. Everything got thrown into 5 years. They also threw in a definition of premium financing within that 5. For traditional life settlements, supposedly they are okay after 2 years, but what they have got is several conditions which didn’t exist before. One of which, for example, is if there had been a life expectancy delivered for that person, then they are thrown into the 5 years, which doesn’t make any sense whatsoever.

There are also disclosures that have to be made to carriers, and it says you have to fully disclose any plans or transactions–here is a transaction to which a settlement provider as a party. And that is really just–will permit the carriers to have a fishing expedition on every transaction.

MICHAEL COBEN: I think the effort of the changes to the Model Act were to address, obviously the premium finance, but I think we all are concerned about the overreaching into the general secondary market. You know, the 5-year ban is contrary to what 34 states have already agreed to.

I think it all goes back to a discussion of education. There are associations out there specifically out to address the aging population about our industry. I applaud the effort, but I can tell you from being involved in every major association across the country at every level, there is still a tremendous amount of lack of education. If you look at how many producers are engaged in this marketplace, it’s still a very finite group and the broad application is really not even close to its potential.

You know, when an agent sees this and says, I don’t really want to engage, because I’m afraid I’m going to lose my license and I’m afraid I’m doing something wrong, they are not seeing the facts. And I think what we have to do is do a two-prong piece of education on a groundswell level to educate the general advisory community, whether it is the estate planning attorney or the CPA or trust officer or the life insurance agent, that this is a planning option.

Everybody talks about this as a product. I think this is a solution. And that’s what insurance is all about, to provide a solution. This is another arrow in the quiver to the financial planning that an advisor should be involved in. We are working with a high net worth affluent client.

So I think we need to educate the individual producers. We need to educate the associations, so when the legislators get together and create policy they have an impact on what is being presented.

SEAN MICHAELS: Well, also just extending that, it’s educating the legislators and regulators.

MICHAEL COBEN: And even the insurance community. There are many insurance executives that still don’t understand.

CRAIG SEITEL: Those go hand in hand. The broader community, the decision-makers, is going to become well aware of this as the financial professional becomes aware of this and conveys this information.

MICHAEL COBEN: When you speak to an attorney or accountant or CPA who typically on a transaction of this magnitude, there are three or four parties involved in overseeing the transaction. Trust officer is involved, if it’s a trust-owned policy. The insurance advisor is involved. The estate planning attorney is involved. So these aren’t uneducated parties involved in this transaction. I’m not sure that it’s a concern of protecting the widow and orphan situation, but it’s to facilitate the full disclosure of the transaction and all parties are aware of it.

I can tell you when I speak in front of councils across the country, they embrace it because they look at it as a tool in planning, much more so than the insurance agent who is being pushed back from other sources saying you shouldn’t be delving into this marketplace.

CRAIG SEITEL: It is still mindboggling to me. I mean the industry is clearly growing at an exponential rate. Yet the carriers still resist conveying this information to the groups that they represent. And at some point, not only is it a disservice, but it can be an illegal indiscretion and the carriers can get sued. There could be some legal ramifications. And I think when that starts to happen, and I think it’s inevitable, if we continue in this path, you are going to see carriers cooperating much more.

MICHAEL COBEN: I think there is a legitimate concern where a carrier doesn’t allow agents to participate in the business. To me it creates a liability, because what if the client comes back and says after they surrendered the policy, had I known that the fair market value of the policy was 3 times the cash value, I might have chosen that option. And you know what, it’s your responsibility as my advisor to share that information.

ROB HAYNIE: And I asked you for that information and you told me nothing and you were following your rules set by your employer not to mention it. So what’s right?

ROBERT FINFER: You forget a major component of your advisors there. The agent has a fiduciary responsibility, but not only that, the license that is required to obtain a life settlement license–in most states you need to have the agent licensed in order to get that. So you have a responsibility. It is unconscionable that you would not, for a senior client today, obtain life expectancies in order to service that client properly with the right information and the certification of the agent portion.

DOUG HEAD: But the NAIC Act says if you did that…

ROB HAYNIE: You must be doing something wrong.

ROBERT FINFER: Exactly. You would think that a senior agent who is properly advising a client would obtain those life expectancies and look at the premium finance market. That’s their job to do that and to identify the right product for that particular client.

SEAN MICHAELS: I agree. And it’s one indirect consequence of these carriers changing applications or adding supplemental intent forms. There is a question on there for the agent to answer which says, have you discussed a life settlement with the client? And a lot of the agents and advisors that I have seen are scared to answer yes to that question for fear that it may cause the case to be kicked out of underwriting and a policy not to be issued.

I think it’s important that agents out there know that full disclosure of all material facts and filling out the application honestly is important. And that the carriers need to be able to communicate, although we are asking this question, this is not going to be grounds for us to deny, because all financial advisors need to present as many options so they can to pick the most suitable–to allow the client to make suitable decision.

ROB HAYNIE: Let me get back to Mike’s point which he said earlier. Education. We have a great story. You want to talk percentages? A hundred percent of the time when a life settlement occurs it is the best option for the client. That’s a fact. They don’t surrender their policy for a million two when they can sell it for a million eight. It’s always the best option.

We are doing, as an industry, a terrible job of getting that message out. We never really asked this governing body what it is that they have a problem with in our marketplace. We just allowed ourselves to be picked on.

CRAIG SEITEL: How do we leave this room today and impart that positive information to the industry?

ROB HAYNIE: Well, one of the things I’m proposing that we do is we create the same type of entity, if you will, that our opponents have, which is a full-fledged public service information bureau that does nothing but send out positive stories that has the buyer, the seller, whatever the flavor of the month is in that particular state, testify that this is what happened. This is my agent. This was my situation. This is what I did. This is why it worked. This is why everything is fine. Everybody made money, including me, and we go back to again hitting on the education point. At the end of the day the carriers will realize that they will have a better chance at the dining room table of selling the policy if this is another arrow in their quiver. And that, oh, by the way, 10, 15, 20, 30 years down the road, you may have an option to sell this in a secondary market, just like every other financial product you buy today.

We are not to that point and though we have done a great job with LISA we are still in an industry, for what it’s worth, that hasn’t started yet. But we now have to seize the opportunity to go tell our story.

BRYAN FREEMAN: The other thing that we saw happen at NCOIL is that, and they are right about this, that the legislators believe that the current law can handle this problem and they are dead on. You know, you don’t need to make a new law to deal with this issue.

DOUG HEAD: So the Model Act is no model act?

BRYAN FREEMAN: Obviously, we have a good model that we have been using for years, very successfully. And all of a sudden because a newer kind of flavor of premium finance comes along you have to to change something that has been working and has been proven to work. As a matter of fact, I think you saw a lot of regulators who testified in these states that they have no complaints. None. Can’t find any.

DOUG HEAD: So does it work to shoehorn premium finance into the settlement model?

ROB HAYNIE: Settlements are settlements. Premium finance is life insurance at issuance. It’s not the same thing. They have managed to make it the same thing, because they have figured that our marketplace is where it ends up. They decided to go ahead and put everything into that.

DOUG HEAD: Earlier Michael referred to settlement at inception. How does that process work?

MICHAEL COBEN: Well, there are transactions where from the inception of issuing the policy there are prearranged activity going on between the insured or owner and the potential investor, so it’s a simultaneous transaction. So those are the type of transactions that are prearranged, up-front money, sharing of death benefit for the life policy. Those are the ones that I think best express the concern. And, I think, you know, probably restating this from what we said a couple of times is that the focus should be on that from the carrier standpoint, not on the secondary market as a whole. There is enough there to self-police. They just have to spend the time and energy and monetary resources to flush that out and utilize the current state-adopted legislation as the forum.

CRAIG SEITEL: When you have other situations, which are legitimate clean situations, where there is insurance need, attorneys involved in the case, cash flow issues and they are borrowing premiums to satisfy their estate planning with the right down the road to view the secondary market as an option, to restrict that option in their current ongoing planning, you know, and restrict the property rights of being able to transfer the policy for value is in our mind a problem. And it’s anti-consumer and anti-insurance in many ways.

STEVE PIONTEK: I would like to go back to this question of education, because everybody agrees that that’s really what you need, but it seems to me anyway that there are many camps that need to be educated. You need to educate consumers, legislators. But do you have any ideas regarding education as to how you are going to do outreach to these individual segments?

MICHAEL COBEN: It starts on the ground floor. Many of our firms, providers and some of the brokers out there provide continuing education credits for agents. I know in Pennsylvania required 24 hours of education credits are required. Part of the efforts of all of our resources is to contribute towards that process. I know at Coventry alone we put 20,000 people through continuing education forum in the last 3 or 4 years. If we all did that together collectively and then start from that group into other groups as well that will help facilitate the process.

JERRY SODERBERG: Regarding legislators, there is a NCOIL meeting we were talking about on April 21. They scheduled that for a six-hour meeting. So that’s an indication of a high interest level and those are the key insurance committees from around the country that attend NCOIL. And I think there is probably awareness both at the full committee level and a number of people in subcommittee, so that’s a concentrated area there to educate legislators across the country at that level.

CRAIG SEITEL: It’s starting to happen too because many of the national accounts are now requiring their producers and representatives, prior to engaging in this marketplace, to take an educational course. And some of them have suitability requirements. Is this producer qualified to give advice in this type of transaction? So some of it is starting to happen. It’s just a slower process than obviously we’ve all been hoping for.

DOUG HEAD: What about the question about educating the public at large? Is there some way to do this? Is it going on?

ROB HAYNIE: It’s starting. You’ve got to think who our public is and think about the high net worth affluent senior. Whether you educate him or her or not, he’s going to then turn to his or her advisor, so that’s where you are reaching out to, those people at that level. As you move down you are starting to see a trend towards a lot of the institutions that are coming in. They are all trying to carve their niche. You are going to see a movement to what they call the orphan policy owner, which is the one that doesn’t get any phone calls and hasn’t talked to their agent in 10 or 15 years and make up the bulk of life insurance, you know, the 250,000 death benefit and down. That’s the beginning.

MICHAEL COBEN: I think the education revolves around everybody that gives input to a client. It’s no different than any other discipline. If I am a client and I need some estate planning done for myself, I’m not going to read about it. I’m not going to investigate trust. I’m going to rely on my expert, my trusted advisor. And we have to impact the trusted advisors in the marketplace. It’s a long, slow process and we are being interrupted by forces for their own interest and we have to push back.

STEVE PIONTEK: It seems to me a large problem here is agents feeling they are really pressed from a lot of different sides.

RAMIRO RENCURRELL: At LISA we’ve gotten to the financial ability to educate sister organizations that we did not have before. I believe Doug and his staff are now exhibiting at most of the major trade associations, our sister life insurance associations–ACLI, NAIFA and NAILBA. We have been able to talk to a lot of the producers and a lot of the broker-dealers and have seen a lot of change in the large broker-dealers where they are now allowing the agents to present the settlement.

LARRY SIMON: You know, the education of the public and broker-dealers, that is all great. We talked about that last year. The policy flow in the market is huge, but it seems to me we need to first address getting the negativity out of the newspapers and the politicians.

RAMIRO RENCURRELL: You are absolutely right. To put it into perspective, for the amount of transactions that occurred in our industry, the amount of negative publicity that there are over the one or two cases where it has been a negative situation, I mean, the other 99% are positive for the investors, are positive for the consumers, are positive for the policy owners and are definitely positive for the insurance carriers. You are right. Let’s get all this negativity out of there and let’s get these one or two situations that have given us a black eye in the past and get over it and move forward.

MICHAEL COBEN: I think what we are seeing is that the transaction is being used as a solution to many different situations. I will give you one example that we are working with right now. There is a family business in bankruptcy and they are utilizing the value of the policy to help them get out of the bankruptcy. That’s real value. That story has to be told. There are situations where people have had significant downturns in the retirement assets. They look at all the assets they own. They look at their insurance policy as another asset and value in terms of value in the market. And you have people supplementing their retirement income by selling one of their policies that they have in-force on a corporate basis, because there is a real need. So I think as we educate, part of that education is to understand how broad of an application this has become in planning.

ROB HAYNIE: We offer a free service for folks. That’s the unique thing about our product is as a customer you have an opportunity to go to one of 400 different places and have your life insurance asset appraised for free.

ROBERT FINFER: To add to Rob’s assessment, not only do we offer it for free, we have a license to do so. We have E&O coverage that covers it and you can extend to the agents to do it. There would be no reason a sophisticated good agent wouldn’t want to do this for any client that is above the age of 65.

BRYAN FREEMAN: It doesn’t take a rocket scientist to figure out that $50,000 worth of cash value, versus the $200,000 purchase price, which one do you choose?

DOUG HEAD: Do most policies that come to market come to market because they are about to lapse or surrender?

LARRY SIMON: No, they come to market at the time when an annual payment or payments are due.

CRAIG SEITEL: Or their financial or personal situation has gone through a change. So typically there is some change.

ROBERT FINFER: Why even that? Why not being in touch with your senior age client and two years later come back and say let me tell you what the value is today and give them an idea of what their options are and maybe identify new needs.

LARRY SIMON: I think we can sit here and give examples all day. The realization is that there are a lot of positives we can bring out.

STEVE PIONTEK: I’m sitting here and I’m listening to all this–I’m a journalist and I’m thinking, if all this good stuff is true, how did you guys get painted into such a corner, because the perception is something smells. Something smells and so many times to counter a perception like that you really have to go the extra mile.

MICHAEL COBEN: I think you’ve got to define the misconceptions and tackle them one on one. Part of the effort would be to understand what the misconceptions are and fill in the gaps and define why those misconceptions are.

CRAIG SEITEL: The issue we have and the challenge we have is we are a developing industry, an industry in the early stages of its life cycle, so these misconceptions are coming about anew. So we can address each one of them and I think there are a number of different strategies and perhaps you need to take several on simultaneously, but even today we are talking about these wonderful stories.

STEVE WASHINGTON: The way I see it is that you will do it through a couple of different ways. One, I think it will mature over time, partly because of the investors. The investors are all at this point high quality institutional investors, major banks and the like that are entering into this space. They have their own operating requirements and are, you know, starting to impose or at least demand standards that are to theirs. And then I think as well, the other approach is updating regulation and actually there is stuff in the new proposal which goes to those points. Some of it is disclosure of commission or disclosure of affiliation, etc., which all will, I think, contribute to improving the playing field and eliminating inappropriate conduct over time.

SEAN MICHAELS: I would like to add to that. When you talk about going the extra mile for the benefit of getting out there, there are a lot of life settlement brokers out there. In addition to having the licensing and the good professional reputation, they will in order to be more competitive offer transparency and full disclosure of all the fees and compensation to all the financial advisors that are involved and in that way market forces are going to work out to kind of weed out the bad actors and raise the standards of this industry internally.

BRYAN FREEMAN: Well, back to NCOIL. The legislators in that process actually saw all of this and they came to the point, you know–when we started with NAIC we were slammed with a product that we didn’t like and couldn’t live with. The legislators saw it. They identified the issues correctly as property rights issues, as issues of the policy being initiated incorrectly and the fact that regulators have current law to deal with that. And they even went so far as to go back–to propose a resolution which was passed, which passed the committee, the life committee, which passed the executive committee of NCOIL. They went so far as to ask NAIC not to pass their proposal because they saw all the good things about our market that we are talking about today. They were able to weed through the misinformation and the propaganda to come to zero in on the real problem.

So, frankly, if that group of people can do it, others can too. It’s just incumbent upon us to keep being out there.

LARRY SIMON (looking at his Blackberry): By the way, this is just in from Jim Connolly at National Underwriter. The North Dakota House Insurance Committee has approved a settlement bill that would require most consumers to hold a policy at least 2 years, in many cases 5 years, before selling the policy.

ROB HAYNIE: Is that the state that had the 3 transactions in it?

LARRY SIMON: Yeah, the bill passed 45 to nothing.

STEVE WASHINGTON: Look, we were up against home turf of the commissioner, the chairman of the life ‘A’ committee. I was going to say, notwithstanding the fact that we weren’t able to turn back the 5-year transfer restriction we did, nevertheless, succeed in gaining a number of amendments, decriminalizing the failure to disclose the transactions and other useful amendments, including one that provides insurance carriers cannot impede life settlements. So I thought we actually did pretty well…

ROB HAYNIE: In essence, the 5 years gets rid of what they wanted to get rid of.

LARRY SIMON: Is this something that we talked about, you know, to now come out and say North Dakota takes away consumer’s rights and attack like that?

BRYAN FREEMAN: Well, I think it’s very interesting in a state where people who live there are land rich and money poor are now been told that they can’t borrow money to buy the life insurance to keep the farm and the family anymore.

LARRY SIMON: Do we do a press release with sensationalism?

STEVE WASHINGTON: I think that was recognized during the proceedings and what was actually refreshing about North Dakota was that there was a dialogue. I give the legislators a lot of credit for actually meeting with us multiple times and listening to both sides of the argument and having at least a fair shake, okay?

CRAIG SEITEL: I think there is a lot of misconception of what the NAIC Model Act, in terms of amendments, really meant. I mean there was a fear of some of the population that I spoke to that it now became illegal across the nation to do certain types of transactions, because they were so misinformed on it is the NAIC Act and the process itself was unknown to a lot of people.

SEAN MICHAELS: That’s right. Financial advisors need to know that it’s really up to each state to decide whether or not they want to adopt certain parts of that model act.

STEVE PIONTEK: I think we’ve come to the end of the time that we have for the roundtable. I was wondering if anybody has any concluding remarks.

RAMIRO RENCURRELL: I think the outreach effort that LISA has put in place is going to continue and we are going to get more aggressive with that outreach program in a positive manner, although we do recognize that we’ve taken off our gloves in some of these instances and Doug has now also, we are starting to get CE certified, so we are going to be giving the same similar type of courses and get the general audience at least interested in coming to hear the talks and hear our message as to what the secondary market for life insurance is about and what do we stand for consumers.

And really like you said, we need to be seen in a different light than the light that we have been seen in the past. And over a few black eyes it doesn’t mean the entire industry is bad, you know, for lack of another word. I think we have a lot of work to do ahead of us, as far as education is concerned in many different fronts.

STEVE WASHINGTON: Well, and I think although the industry, this industry has fewer resources available to it than the trade associations or the carriers, this is an industry where we see more and more seniors and more and more financial advisors learning about it. And it absolutely produces a benefit for many people. We are not saying that it’s for everyone. We are looking at individuals that are thinking about surrendering their policies. I think when seniors are presented with the option, there are a number that are going to choose it. So I think that from a consumer perspective, it will eventually be advanced. Yeah, there are going to be setbacks but I think over the long time this is not going away and so, if I were in the carriers’ shoes I would be trying to figure out how to make this work for them or how to get into it. I wouldn’t be trying to resist it. I think there is also diversity of fears within the insurance carrier community. I think that there is fear of stepping out of the pack and being identified as not with the group.

ROB HAYNIE: It’s creating an opportunity for these producers to get inside and get reconnected with their clients.

Six years ago most certified public accountants would deal with life insurance policy as, not an asset, but as an expense, because the annual premium and now they are looking at this just like a home, a boat, a piece of art, a piece of jewelry that you can get appraised, albeit for free, and that’s where I think we are trying to tie this up. It’s a process that we can look at ourselves and look at how much business this table did five years ago and that’s what two or three companies did last month. That’s where this industry is moving. So the industry has kind of got a momentum on its own. I think it’s up to us to get the message out there. I think we are big enough and we are more sophisticated. I think we have got the white hats and I think it’s up to us to tell the story.

STEVE PIONTEK: I really enjoyed today’s discussion. I thought it was very spirited and really focused on what is happening now.


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