Consumers Lose After Commissioners’ Action

Members of the Life Insurance Settlement Association (LISA) are “prepared to fight” action taken at the just concluded National Association of Insurance Commissioners (NAIC) winter meeting in San Antonio.

At the quarterly meeting, and according to LISA’s Executive Director Doug Head, the NAIC Life Insurance and Annuities (A) Committee voted in favor of adopting numerous amendments to the organization’s Viatical Settlements Model Act that do not focus on the Committee’s stated goal to, “consider changes to Viatical Settlements Model Act in response to concerns about investor-initiated life insurance.”

“In addition to failing to address central goals identified by the NAIC, our members feel this proposal does not address the need for new thinking about this relatively new industry (the life settlement industry),” Head says. “LISA members feel that, worst of all, this legislation is a direct assault on consumer rights and established law. In fact, the NAIC proposal seems tailor-made to protect outmoded and anachronistic business and insurance company practices; it makes it more difficult for all life insurance policy owners to access the secondary market for life insurance if they seek to sell their policies.”

With the Life (A) Committee’s approval, NAIC’s executive committee will act on the recommendation (this proposal) at its spring meeting, to be held in March in New York. Though it is typical for the Executive Committee to adopt recommendations of its working Committees, Head says, the historic pattern of NAIC Committees has not been to push quickly for adoption of such controversial measures.

“We cannot understand the motivation here,” he says. “With other bodies like NCOIL (the National Conference of Insurance Legislators) looking at this, we can only hope that the Executive Committee will seek to restore the process to a balanced and careful tradition which has marked NAIC deliberations in the past.”

NAIC Model Acts are intended to serve as legislative and regulatory templates that states may adopt to provide legislative guidance on various topics. The current Viatical Settlement Model Act (which includes Life Settlements) was adopted in 2000. Typically the NAIC process embraces an ongoing public dialogue among all interested parties, including consumers, to ensure the models are reflective of market and regulatory needs, and can really be adopted in the states.

“Many of the provisions adopted (by the Committee) have already been rejected by over a dozen state legislatures,” Head says. “The (NAIC’s) goal would have been better served by assignment of this topic to a working group which could then receive input, study the topic and arrive at a more effective end product. Consumers and their advocates, including LISA, were not given the opportunity to be heard and to fully share their views with policy-makers in the NAIC process.”

Further concerns enumerated by Head include:

—More than 10 new previously undisclosed amendments were added to the proposed draft and published on November 30, 2006, after a brief conference call with the Committee Chairman at Noon on the day before Thanksgiving.

—Interested parties had only 10 days to review and understand the provisions, which were further modified by amendments offered at the end of the meeting but drafted in the back-room just hours before the session.

—The committee, sitting with the political leadership of the states at the table rather than the customary experts on the detailed issues, took public testimony at the committee meeting but no substantial dialogue occurred between the regulators and the interested parties regarding the
new wording.

—Only four of the 13 member Commissioners commented at the session.

“As a veteran of the legislative process,” Head says, “I would posit that it is difficult to draft effective language without participative dialogue, and without the give-and-take. It is even more surprising that the Commissioners adopted these new provisions after receiving verbal comments from a representative of the (U.S.) Office of the Comptroller of the Currency (OCC) and the nation’s banking interests who felt that the proposal violated provisions of the Gramm Leach Bliley Act.”

According to Head, from the outset, the Poolman Amendments [named for Life (A) Committee Chair Jim Poolman, who is North Dakota’s Insurance Commissioner] were an effort by the Chair to address a concern that some private investors were purchasing life insurance on individuals, with the individual’s permission, and with whom the investors have no relationship (so-called “stranger-initiated life policies”). Regulators, the life settlement industry, the life insurance carriers and others believed that this phenomenon needed to be addressed.

“Ultimately, the Life (A) Committee did not meet its charge—to stop the manufacture of stranger-initiated life insurance and the transfer of those policies in trust or other schemes,” Head says. “The concern with investor initiated life insurance led to a resolution in 2005 which has not gotten the necessary follow-up. Instead, they have negatively impacted tens of thousands of consumers of life insurance products and, possibly, opened up substantive legal questions.”

“Our Association and its members have a strong history of cooperation with and input to the NAIC and its Committees,” says Ramiro Rencurrell, president of the board of LISA, “so I am all the more disappointed that this inappropriately rushed and wrongheaded action was taken without taking time for reflection and input on these very complex issues. Our Members just don’t believe (the approval of the amendment) addresses the core issue the Committee set out to address, and we would like to work with them to rectify that.”

Rencurrell says LISA intends to educate the public so as to build the base of informed entities to ask the Executive Committee of the NAIC to re-consider the Model or refer it back to the Life (A) Committee for review by a working group. “This does not need to be time-consuming,” he says, “but it does involve a day or two of open dialogue with all parties face-to-face.”

“We firmly believe that a lot of people, both within our industry and with only tangential interest in our industry, will be shocked to realize that this reactionary and protectionist proposal has come as far as it has,” Rencurrell concludes. “We are starting now to bring more players to the process.”

Among other things, Head says, LISA will step up efforts:

—To ensure the NAIC will recommit to strengthening its fact-gathering in this area of activity.

—To recommit to work with the NCOIL process which once gathered and reviewed valuable information on the settlement industry.

—To identify inappropriate activity and to ensure that LISA members are abiding by new, even higher professional standards.

—To work with individual state regulators, legislators and with NCOIL to identify the unacceptable elements of the proposal which, if adopted in
any one state, would immediately damage the interests of consumers and businesses in that state.

—To continue to reach out to life insurance professionals so that they become more active in the discussion.

Founded in 1994, the Life Insurance Settlement Association is the oldest and largest trade organization in the industry. Its goal is to promote the development, integrity and reputation of the life settlement industry, and to promote a competitive market for the people it serves. LISA now represents 132 member companies with a wide variety of interests in the industry. A life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Such transactions are usually undertaken for the purposes of estate or financial planning. For more about LISA: www.lisassociation.org.

For further information, please contact

Doug Head
Executive Director of LISA
407-894-3797
Email Contact
Drew Plant