Proposed Moratorium on Life Settlements Puts LISA and NAIC on Collision Course

Following the decision of the NAIC Life Insurance and Annuities (A) Committee to adopt varied amendments to the Viatical Settlements Model Act, officials and members of the Life Insurance Settlement Association (LISA) vowed to continue the fight and condemned NAIC’s so-called consumer protection measure as “a direct assault on consumer rights and established law, on the contrary.”

LISA officials also noted that representatives from the consumer public were willfully denied the opportunity to explicitly communicate their concerns and to be heard by policymakers during the NAIC dialogue.

They said that these amendments would only make things more difficult for all life insurance policy owners to access the secondary market for life insurance if they seek to sell their policies.

Notwithstanding the imminent passage of the proposed amendments to the viatical law, some analysts believe there is still strong likelihood that this year will be a banner year for life settlement products. Life settlements are current life insurance policies which are sold (to a third party) for more than its cash surrender value but less than its net death benefit.

Policyholders usually enter into transactions like these in order to free up assets that can be reinvested for estate and/or financial planning.

Officials from LISA, though, lamented that their biggest challenge this year would be the regulatory environment, which they fear is already becoming more and more repressive. Normally, the NAIC process involves all concerned parties (even the public sector) in an ongoing public dialogue so that the regulation models perfectly – if not, appropriately – mirror the market and regulatory needs. Also, so that it can realistically be adopted by the states.

One result when this amendment gets enacted is the implementing of a 5-year moratorium on the sale of life insurance policies (after their initial purchase).

Such a moratorium, some experts say, can prevent the committing of investor-initiated (or stranger-initiated) life insurance fraud. In investor-initiated premiums, investors can entice an individual to take out a policy. Although LISA feels that the NAIC is taking a very vague, wide approach on the matter, they do understand the relevance of preventing investor-initiated insurance fraud and they still support most of NAIC’s stands on such provisions.

Some experts consider the proposed moratorium as “extremely anti-consumer” and explained how it restricts the consumer from easily accessing the settlement markets.” They said it’s bad timing for such a moratorium to be even considered since the life settlements industry is priming itself for a bullish performance this year and especially now when the industry is re-infusing more fresh capital than ever before. The effects of a moratorium – when implemented – won’t really hurt the business operations of some companies right now, but may further down the road.

Furthermore, one of the proposed amendments in the viatical model law is the mandatory disclosure of all commissions of life settlement brokers…a requirement, which could be very burdensome for those brokers. Moreover, policies in life settlements are really just one and the same yet they are being treated as two different products. A lifetime settlement broker who sells the same policy shouldn’t be compelled to disclose his or her commissions, industry analysts contend, since life agents who sell the same type of policies aren’t required to do so.

For a decade now, LISA has been advocating laws that represent the regulatory structure of the industry. For example, they backed the Florida seminal law, which mandates the disclosure of both the price and process of compensation for brokers in the settlement industry. Similar laws were introduced but not ratified in other states (very recently just last year).

According to Coventry, the difficulty with adding the proposed, albeit macro-level measures to the viatical model law is that it would impact not only valid life settlements but also the ones that NAIC is trying to prevent. One pressing issue for LISA and life settlements brokers is the lack of understanding on the part of policymakers and regulators. Many of them know so little about the life settlement market.

LISA has sought bi-partisan support ever since in the development of beneficial and suitable industry regulations that likewise benefit the public. That’s why, to date, they have been quite vocal in their request for a spot at the dialog where the NAIC’s proposed amendments will be deliberated on. They just wanted the executive committee to include them in the meeting so that they can explain how the life insurance settlement industry works, and how to efficiently address fraudulent investor- or stranger-originated life insurance practices.

LISA officials made it clear that they would mobilize all efforts to contest the model law if the NAIC executive committee decides to give its nod to the proposed moratorium.

Ultimately, LISA considers itself to be safeguarding what’s truly in the best mutual interests of the consumer public and life settlement insurance industry. With an ever-watching eye on the NAIC and focus on lobbying to effect meaningful changes, LISA will continue to work with the former NCOIL process which once gathered and reviewed valuable information on the life settlement industry.

SOURCE: InsuranceNewsNet, Inc.