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NAIC: Settlement Model Process Was Unbiased

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An internal investigation into the approval process related to the adoption of the Viatical Settlements model act by the National Association of Insurance Commissioners, Kansas City, Mo., found that the process used by the group of state regulators passed muster, said a law firm retained by the NAIC.

“The model was accorded open debate and unbiased consideration and that the adoption of the model act by the NAIC’s Life Insurance and Annuities “A” Committee was unbiased and not subject to undue or improper influence,” NAIC said.

“We were confident going into the review that the model amendments had been subjected to thorough and open debate, and we have been looking forward to confirmation of those facts. We can now focus on getting this model introduced and adopted by the states,” said NAIC President and Kansas Insurance Commissioner Sandy Praeger in a statement.

The investigation was conducted by the Kansas City, Mo.-based office of Bryan Cave. The outside firm interviewed all 12 members of the “A” Committee which developed the model, according to Scott Holeman, an NAIC spokesperson. The outside firm “reviewed the process–to see if it was 1) open and deliberative and, 2) that members made decisions based on information received from all sides,” he added. But, at press time it had not been confirmed what other “relevant documents” in addition to meeting minutes had been used in the review.

Trade groups contacted by National Underwriter said they had not been interviewed for the internal investigation.

At press time, Lynn McCreary, a firm partner who headed up the investigation could not be reached for comment.

The issue was brought to light in a letter from NAIC-funded consumer representatives dated Sept. 24, 2007. The letter strongly criticized the closeness of some commissioners to the industry, including former North Dakota Commissioner Jim Poolman.

In particular, the letter cited questions regarding Poolman’s oversight of the development of the Viatical Settlements model act as well as concerns about his hope to find a job in the industry. Additionally, attachments to the letter raised concerns over campaign contributions made while Poolman was chairman of the “A” Committee overseeing the process.

In a statement, Poolman, now running his own consulting business based out of Bismarck, N.D., said, “I am glad this whole episode is over, and I am not surprised with the results. I have always known there were no conflicts of interest. This is something just ginned up by those in the viatical settlement industry who don’t want to be further regulated. I am disappointed by their tactics, but it comes with the territory. There was a lot of hard work and effort put into this legislation by many, and I am glad that I and the process have been vindicated.”

Life settlement and life financing representatives see the model’s development and the ensuing investigation differently.

The partner chosen to head up the investigation is a former Met Life employee, says Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla. Among her other credentials, McCreary’s biography says she was previously vice president of MetMor Financial, a mortgage subsidiary of Met Life, New York. Head questioned whether someone who came out of the life insurance industry could look impartially at the issue.

He also noted that in the NAIC’s record of model acts, pre-2004 there are 30-35 pages of records on the viatical model but post-2004, there is one line describing work that is being done on the model.

So, he said, “I don’t think it adds an ounce of credibility to the model on the table now.” And when the model is proposed in state legislatures, “we’re going to scoff at it,” he said.

Since “I don’t understand what the process is” and how a determination was made, it is difficult to comment on it, said Scott Cipinko, executive director of the Life Insurance Finance Association, Atlanta. Those involved in the development of the model should have been asked to comment, he added.

“This confirms what we have maintained since the model was adopted. The NAIC allowed for extensive discussion and debate and gave all sides the opportunity to have their voices heard,” noted Bruce Ferguson, senior vice president-state relations with the American Council of Life Insurers, Washington.

“The NAIC’s careful deliberations produced a Viatical Settlements Model Act that would address the most prevalent form of STOLI, which is a transaction initiated by third-party investors lacking insurable interest for the purpose of settling the policy in the secondary market.”

Gary Sanders, senior counsel for law and government relations with the National Association of Insurance and Financial Advisors, Falls Church, Va., said that while he cannot speak for the investigation’s conclusions because NAIFA was not included in the investigation, “our perception was that the process [of the model's actual development] was thorough and went on for quite some time. It seemed like everyone was heard.”

NAIC-funded consumer reps who brought the issue to the fore in the first place reacted differently to the NAIC findings.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said he was glad that the NAIC was able to “clear the air over allegations made against Jim Poolman.” He noted that Poolman was involved in pro-consumer issues for many years.

He added that although he opposes the NAIC model, when it is raised in state legislatures, he will be able to discuss the model itself.

A conflict of interest policy needs to be developed, Birnbaum continued. Such a policy could require commissioners who participate in leadership positions at the NAIC or as committee heads to sign an agreement in which they agreed not to accept industry positions tied to issues that they had worked on. Failure to comply with the signed agreement would result in a monetary penalty, he added.

Bill Newton, an NAIC funded consumer who is executive director of Florida Consumer Action Network, Tampa, Fla., said that even if nothing illegal was done during the development of the viatical model, there is still an issue of perception and “an appearance that there was a bias. And, that was a problem.”

“If he [Jim Poolman] had taken the donation and recused himself, it would have left the process clean,” Newton added.


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