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Life Health > Life Insurance

NCOIL Backs 2-Year Ban On Settling Policies

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A panel here at the summer meeting of the National Conference of Insurance Legislators rejected a proposed amendment to NCOIL’s life settlements model act that could have added a 5-year prohibition on settling life policies.

Instead, the NCOIL subcommittee on life settlements voted to stay with a 2-year prohibition on settling a life contract unless certain conditions are met.

The action puts NCOIL, Troy, N.Y., in direct opposition to the National Association of Insurance Commissioners, Kansas City, Mo., which earlier this year adopted an amendment to a model act that incorporated a 5-year ban with conditions.

The amendments to both NAIC’s and NCOIL’s models have been taken up in an attempt to stop stranger-originated life insurance.

Kentucky state Rep. Robert Damron, D-Jessamine, Ky., led the charge for a 2-year ban with a letter to the subcommittee, of which he is a member.

Damron said NAIC’s “expansive” 5-year ban is “decidedly anti-consumer,” whereas the 2-year ban in the NCOIL model “is a principled waiting period tied to the statutory contestability period.”

Damron attached to his letter a copy of what he has identified as an Oct. 29, 2006, memorandum from the American Council of Life Insurers, Washington. The memorandum, for the STOLI task force, relates a meeting with North Dakota Commissioner Jim Poolman in which Poolman allegedly defended a certain type of financing program and essentially laid down the law as to what the NAIC would do and what ACLI had to accept.

“According to this document, the ACLI complained in a special meeting with the then chair of the ACLI’s Life Committee (Commissioner Jim Poolman, N.D.) that the NAIC Model Act amendments ‘failed to address the fundamental concerns with STOLI’ because they do not regulate the very scheme that was the impetus of the 2005 NAIC resolution,” Damron writes in the letter. “The ACLI told Commissioner Poolman that, because the model act amendments did not stop ‘finance programs permitting investor participation prior to or at issuance where the policy does not settle and the policy owner derives some modest percentage of the policy death benefit,’ they were ineffective as an anti-STOLI measure.

“NCOIL should therefore adopt a model that addresses STOLI. These amendments should include a series of disclosures and affirmations which will impose greater transparency at the inception of the policy and will enable insurers to investigate and deny applications and applicants that clearly evidence STOLI, but just as clearly protect private property rights and the rights of policy owners to sell their policies to achieve the highest market value, as they see fit.”

In reaction to Damron’s release of the ACLI memorandum, the Life Insurance Settlement Association, Orlando, Fla., said it “has repeatedly raised concerns about the highly unorthodox process and closed-door tactics which were used to develop and adopt the amendments and has held firm that the model does not stop what the NAIC has already identified as the improper manufacturing of life insurance.”

Doug Head, executive director of LISA, said, “The ACLI apparently decided that the 5-year ban on settlements and many of the draconian, anti-secondary market provisions were better–for them–than nothing. The model act amendments certainly impair the legitimate secondary market, which many carriers have publicly admitted harms their lapse-based profits. But the amendments don’t address STOLI.”

George Coleman, who was representing Prudential Financial Inc., Newark, N.J., and the ACLI at the NCOIL meeting, said he would not comment on the ACLI memorandum or Damron’s use of it.

Coleman did say, however, that he was “disappointed” that NCOIL went with the 2-year ban instead of the NAIC’s 5-year ban, which “would have gone a long way toward eliminating STOLI.”

Other changes adopted by the subcommittee to NCOIL’s model act were:

- Various licensing provisions suggested by the life settlement business, including one that states that “a life insurance producer who has been duly licensed as a resident insurance producer with a life line of authority in this state or his or her home state for at least one year and is licensed as a nonresident producer in this state shall be deemed to meet the licensing requirements of this section and shall be permitted to operate as a broker.”

- Numerous disclosures to insurers and owners.

- Stiffer prohibited practices as well as penalties for fraud in life settlement transactions.

- A reporting requirement stating that “each licensee shall file with the commissioner on or before March 1 of each year an annual statement containing such information as the commissioner may prescribe by regulation.” Additionally, privacy protections were explicitly stated in the provision.


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