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AALU VP Discusses Life Settlement Model Provisions

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An Association for Advanced Life Underwriting official talked about efforts to revise the National Association of Insurance Commissioners life settlement model.

The official, Tom Korb, a vice president at the AALU, Falls Church, Va., gave his views on the prospects of the NAIC, Kansas City, Mo., approving changes already proposed, and he talked about other changes the AALU also is seeking.

Korb spoke here during an AALU conference discussion of the life settlement industry.

Korb noted that the AALU worked with other insurance groups to seek a clarification that a $250,000 bond requirement permits a single bond to apply across all 50 states.

During the panel discussion, Korb talked about NAIC model update draft provisions that could ban or sharply restrict the sale of life insurance policies for at least 5 years after policies are purchased.

Korb commented on the extensive set of exceptions

The AALU, other insurance groups and the NAIC have added exceptions to the proposed model revisions, so that the proposed model revisions will address stranger-originated life insurance more effectively while protecting legitimate life insurance and life settlement arrangements, Korb said.

There are now exceptions for legitimate arrangements used for estate, business continuation, business protection and employee benefits planning, as well as a provision that allows someone with insurable who puts up his, her or its own money for the during the first 2 years to sell the policy thereafter, Korb said.

There are also a number of hardship exceptions that allow sales in the secondary market for special circumstances, Korb said.

In addition to features that are already part of the proposed model, Korb said, the AALU continues to seek in a provision that would clarify and narrow restriction on “evaluation for settlement” so that it applies to STOLI, but not to legitimate practices. This is based on feedback from a number of AALU members who engage in legitimate practices that could inappropriately be pulled in by the current wording of the proposed, Korb said.

Korb predicted that the NAIC plenary, or body that consists of all voting NAIC members, probably will vote to adopt the model revision.

The full NAIC “almost always approves” model acts once they have been approved by a committee, as the updated model act for life settlements was, Korb said.

Also during the panel discussion, Doug Head, executive director of the Life Insurance Settlements Association, Orlando, Fla., said it does not seem as if STOLI must be subject to a great deal of exacting regulation, because insurers themselves have told investors that they have been successful at rooting out abusive STOLI arrangements.

But William Fisher, associate general counsel at Massachusetts Mutual Life Insurance Company, Springfield, Mass., called for aggressive enforcement of STOLI arrangements.

“I don’t think you can leave this type of enforcement to the market,” Fisher said.

The idea that insurers should be solely responsible for rooting out potential STOLI is similar to “saying you should not pass a law against shoplifting” because grocery stores should be able to stop thieves themselves,” Fisher said.


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