Stakeholders debating the update to the National Conference of Insurance Legislators’ model act regarding life settlements opted to hold off on much of the major decision making until the group’s summer meeting in July.
At an interim meeting of the NCOIL Life Settlements Subcommittee held April 21 just outside Washington, D.C., members of the panel agreed with representatives of the life settlements industry, the premium finance industry and life insurers that more work should be done to try to broach the gap on the major issues addressed by the model act prior to the committee taking action.
One of the areas that will be discussed between the stakeholders is the basic issue of how the model act will define a life settlement contract and differentiate it from stranger-originated life insurance, or STOLI. Life insurers, represented by Michael Lovendusky, vice president and associate general counsel for the American Council of Life Insurers, Washington, proposed an “indirect approach” on the issue that would offer a broad prohibition and exemptions within the prohibition that allow for what the ACLI views as legitimate life settlements transactions.
Lovendusky said the standard method of seeking to identify and prohibit STOLI transactions as they are exposed simply caused the bad actors in the industry to develop new methods. The ACLI is seeking to “build a better mousetrap” with its proposal, he explained.
Doug Head, executive director of the Life Insurance Settlements Association, Orlando, Fla., balked at the proposal, arguing that “the indirect approach, as it has been described, is filled with potential mischief” that could interfere with transactions and affect the rights of consumers to sell their policies.
Scott Cipinko, executive director of the Life Insurance Finance Association, Atlanta, also opposed the ACLI proposal. “There’s going to be an awful lot of dolphins caught in this net” if the ACLI proposal is accepted, he said, arguing that the proposal could allow for insurers to refuse to sell a policy if the premiums were financed. “The abject refusal to issue a life policy based on how it’s paid for is unacceptable,” he said.
Ultimately, the 2 sides agreed to work further on the issue, but they would use an idea from the LISA proposal with some language contained in the ACLI proposal as the basis of work going forward.
“This is one of those areas that we will focus on” at the NCOIL meeting in Seattle, said Rep. George Keiser, R-N.D., the chairman of the NCOIL Life Settlements Subcommittee. The subcommittee, he said, will meet again in Seattle the day before the NCOIL summer meeting starts to work on the model act further.
Additionally, there was some disagreement over a proposal from the ACLI to extend the rescission period on a life settlements transaction to 60 days from the current 15. That debate gave rise to another, involving where the money paid for a life policy on the secondary market should be kept during the rescission period. The 2 sides agreed to discuss it further after Keiser proposed that the funds should be kept in escrow and then paid to the seller of the policy once the rescission period has ended.
The stakeholders agreed to continue debate at their next meeting on another major issue addressed by the model act, the prohibited practices section, as well as the issue of whether the model should include references to individual investors who might purchase a life policy on the secondary market. While such references might have been necessary in the early days of the viatical market, Head said, the life settlement market has evolved to generally involve institutional investors, and so there are very few, if any, individual investors anymore.