Feature: Settlements spur some carriers to terminate producers or consider policy rescission

Once a life policy has been settled, 50% of direct writing life insurers say their company procedure is to “terminate producers circumventing the system” and 33% say they would “consider rescinding the policy if it is sold,” according to a new report.

Brian Smith, president of the Life Settlement Institute, Hudson, Ohio, says that’s “anti-consumer,” but David N. Wylde, the current chairman of the subcommittee that issued the report, believes those same responses are “proactive” for the insurance companies.

The report is based on a survey a done by the life settlements survey subcommittee of the Society of Actuaries, Schaumburg, Ill. Released earlier this year, it drew responses from 19 direct writing carriers that have total individual life face amounts in force ranging from under $50 billion to over $500 billion. In many questions, such as the one above, respondents were able to indicate more than one selection.

Wylde, a research actuary at Transamerica Reinsurance, Charlotte, N.C., highlighted some of the key findings during a breakout session at a recent life insurance conference in Washington, D.C. The conference was sponsored by LIMRA, LOMA, SOA, and ACLI.

“Terminating producers for circumventing the system” is something that companies can do in response to life settlements, Wylde said. “It’s very proactive.”

If a company doesn’t want to see their policies being settled, he continued, it can “incentivize” producers away from trying to get life policies sold by taking this approach.

As for policy rescissions, Wylde noted that carriers do rescissions in the first couple of policy years–during the contestable period–if there is something “not right” about the transaction. Typically, he added, if a company looks at a block of settled policies, that usually happens in year three–and that is outside the contestable period, so “there is not much companies can do (to rescind) then.”

But Smith, when contacted by Settlement Watch about the survey findings, said that the two practices–producer termination and policy recession–are “inappropriate and without justification.” His organization seeks to foster knowledge of life settlements among insurance and financial planning professionals.

Consumers have had the right to sell their life policies since 1911, Smith says.

“Also, 39 states have legislation in place governing life settlements, and four states now require life insurance companies to notify consumers of life settlements when they send the consumer a lapse notice.”

That means “it is inappropriate to terminate producers who are providing their clients with appropriate guidance on life settlements,” he said. “And there is no legal justification for rescinding a life policy due to the fact that a legal life settlement takes place.”