LISA Renews Objections to NAIC Model Act

The Life Insurance Settlement Association (LISA) today renewed its objections to the recent amendments to the NAIC Viatical Settlement Model Act, after it was revealed that both the primary author of the model and its key supporter, the American Council of Life Insurance (ACLI), knew that the model act failed to address the problem of stranger originated life insurance (STOLI). LISA 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.

According to the minutes of a meeting between the ACLI and North Dakota Insurance Commissioner Jim Poolman, who as chair of the NAIC’s Life Insurance and Annuities (A) Committee and a member of the NAIC Executive Committee, authored and shepherded NAIC passage of the recent amendments to its Model Act, insurers complained that Commissioner Poolman’s amendments did not stop STOLI because they did not prohibit “finance programs permitting investor participation prior to or at issuance” of a policy where the consumer only “derives some modest percentage of the death benefit.” Commissioner Poolman, according to the minutes, defended the very company whose practices triggered his committee’s June 2005 NAIC resolution condemning that company’s business practices as against public policy. The minutes indicate that, to back up his new support for this company and its practices, he indicated that he would be the only author of amendments. He then threatened the ACLI that they should not alert other members of the committee that his draft contained a loophole benefiting the program that the committee had previously condemned.

The meeting minutes were released in a memorandum issued by Kentucky State Representative Robert Damron at the Summer Meeting of the National Conference of Insurance Legislators (NCOIL). Representative Damron’s memorandum explains that “The ACLI apparently gave in to Chairman Poolman’s determination to protect the INSCAP (which is known to many by its former corporate name, LILAC) program identified by the ACLI as STOLI, following his threat to retaliate against any lobbying to make the bill’s language meet its purpose. Commissioner Poolman apparently told the ACLI (again according to the attached Memorandum) that ‘he intended to be the architect of whatever the final product of the Committee might be—if any—and that he disapproved of industry efforts to identify leadership on the committee beyond his own.’ He backed this up with a warning that he would kill the bill: ‘the only choice for the industry was to agree to address STOLI settlement schemes now or risk receiving any useful NAIC guidance on STOLI this year.’”

“Why has the NAIC strayed so far from its own policies? Why have life insurers given up on stopping STOLI?” asked Doug Head, Executive Director of LISA. “Stopping STOLI means what the ACLI said it means: preventing investor participation in the death benefit prior to or at issuance of the policy where the insured’s chosen beneficiaries only receive a pittance. The ACLI was right when it said that, because the NAIC model ‘failed to address all financing schemes primarily benefiting investors,’ it ‘failed to address the fundamental concerns with STOLI.’”

“The NAIC’s charge to the Life (A) Committee was specifically focused on addressing STOLI. Instead of addressing STOLI, however, Commissioner Poolman strong-armed a five year ban on life settlements that never made any sense. Now we see that the new model was not drafted in good faith by policymakers whose responsibility is to be impartial. Instead, it gives a free pass to what the ACLI labeled as true STOLI—‘investor participation prior to or at policy issuance in financing schemes primarily benefiting investors.’”

LISA has repeatedly raised serious substantive and legal concerns regarding the NAIC amendments’ interference with property rights. Noting that, after Commissioner Poolman’s threats, the ACLI dropped its complaints about the model and vigorously supported it despite the proposal’s shortcomings, Head said, “Policymaking should be done in the open.

Members of the Life (A) Committee and other interested parties had a right to know that insurance carriers, who have portrayed themselves as STOLI victims, and who because of their position, know what is happening in the market, told the chair that his bill did not do what it purported todo. Did the other members of the committee realize that the ACLI had warned that the model that the committee members were supporting shielded from any and all regulation precisely the programs that their committee had condemned in June, 2005?”
Head concluded: “The ACLI apparently decided that the five 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. We only wish someone had let us in on the secret, so we could have understood how what was supposed to be an anti-STOLI project instead became an all-out attack on the secondary market.”

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 150 members with a wide variety of interests in the industry. For more about the Association, visit www.lisassociation.org.

Contact:
Doug Head
Executive Director
LISA
407-894-3797
Email .(JavaScript must be enabled to view this email address).