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November 11, 2007 at 02:00 PM
State insurance legislators assert that a life settlements model act they are developing is on track to be adopted at the annual meeting of the National Conference of Insurance Legislators, Troy, N.Y., which runs Nov. 14-18.
As part of their effort to advance and finalize the Life Settlements Model Act so it will be ready for the 2008 legislative season, an all-day work session was held in Chicago on October 25.
Approximately 40 attendees and witnesses including legislators, regulators and life insurance and life settlements executives were present, says Mike Humphreys, NCOIL director of state-federal relations.
A large segment of the meeting was devoted to a discussion of what should be under insurance regulation and what should come under the purview of securities regulators, according to participants. Other topics broached included the issue of preventing the use of trusts to shield stranger-originated life insurance transactions as well as the use of penalties to quell the use of STOLIs.
Representatives from the North American Securities Administrators Association, Washington, offered suggestions to clarify regulatory oversight and NCOIL members reviewed the NASAA markup and deleted language in the NCOIL draft including “life settlement purchase agreement” and “life settlement investment agent.” Also deleted was all of the draft’s Section 14, which deals with false representations and deceptive words, says Humphreys. The reason the section was deleted, he explains, is “because the provisions relate solely to the regulation of the securities side of life settlement transactions.”
However, Humphreys continues, “other suggestions made by NASAA, including deleting references to ‘financing entities, financing transactions and special purpose entities’ were rejected because they are used almost exclusively as carve-outs from certain restrictions” and because there was general agreement among interested parties that “the references needed to remain in the model act because these references are a part of current settlements regulation across the nation.”
Additionally, NCOIL members approved amendments put forth by Rep. Robert Damron, D-Nicholasville, Ky. and Rep. George Keiser, R-Bismarck-N.D. Keiser is chair of the NCOIL subcommittee spearheading the revision of the NCOIL model. The Damron/Keiser proposals strengthen the penalties section of the model and offer language to address the use of STOLI in trusts as well as offer a definition of a fraudulent life settlement act.
Damron says the focus of the model must be to eliminate fraudulent STOLI schemes while ensuring that consumers have access to a life settlement market. A healthy life settlement market, he maintains, is a market solution to ensure that life insurance contracts provide sufficient cash value to consumers. The elimination of STOLI schemes, Damron adds, can be accomplished by putting strong penalties in place for violators.
Damron says stronger underwriting is needed among life insurers and this is already occurring among some carriers. He adds that life insurers have to balance the functions of their sales and underwriting departments, and he believes that in some cases, life insurers have been willing participants in transactions that have resulted in STOLI.
