Life Insurance Finance Association Will Oppose Viatical Settlement Model
Statement: Life Insurance Finance Association Will Oppose State Adoption of Revised NAIC Viatical Settlement Model
ATLANTA–(BUSINESS WIRE)–The National Association of Insurance Commissioners (NAIC) has adopted amendments to its Viatical Settlements Model Act. “This action was taken despite the fact that the model was poorly drafted, did not meet the stated objectives of the regulators and was expedited without having fully considering the issues raised by all industry sectors,” according to Scott J. Cipinko, executive director of the Life Insurance Finance Association (LIFA).
In addition, the adopted changes do not recognize how the life insurance industry and the secondary markets actually operate. “This is just unsettling. The rights of the consumers were not actually considered, and the changes will impair the rights of many life insurance consumers that the Model Act was aimed at protecting,” continued Cipinko.
Consumer groups, a number of other trade associations including the Life Insurance Settlement Association, Life Settlements Institute and the Institutional Life Markets Association, life insurance premium finance lenders and many life insurance agents have objected strenuously to the amendments to the Model Act. In addition, the National Conference of Insurance Legislators (NCOIL) recently adopted a resolution urging the NAIC to delay final adoption of its amendments to the Model Act until December 2007 so NCOIL would be allowed an opportunity to fully discuss and consider its own model law on the subject.
The New York Department of Insurance was a participant in the discussions throughout the process. However, even the department did not support this Model Act, citing concerns about process and the belief that the Model Act falls short in the area of privacy protections. In addition, Nevada, Montana, Washington and Virginia also abstained.
LIFA believes that the adoption of this Model Act is harmful to consumer rights and does little, if anything, to prevent the abuses in the market referred to as Stranger Initiated Life Insurance (SILI) that the changes were purportedly drafted to address. LIFA continues to support the efforts of state policymakers to eliminate such abusive transactions, but while LIFA believes premium-finance lenders must be subject to reasonable regulation, it also advocates strongly for the protection of consumer rights. The Model Act as adopted does not adequately consider those essential rights.
The revised Model Act would interfere with a property right of consumers by prohibiting the sale of a life-insurance policy in the secondary market for five years from the date of its issuance due to the type of financing secured by a consumer even in the event of severe financial distress. A consumer who sought a certain type of premium financing will find himself or herself forced to lapse the policy or retire it for its minimal cash surrender value if he or she is unable to pay the premiums prior to the five-year date. He or she will be prohibited from realizing its market value — antithetical to consumer protection — and at the same time fails to accomplish its intended purpose for the policy. This interference with
a basic consumer right is one of the most dangerous provisions ever adopted by the NAIC. The adoption was accomplished while ignoring testimony from consumer advocates, banking, premium finance and legal experts as well as economists who all stated clearly that the five-year prohibition will do nothing to prevent abusive practices, but will have the detrimental effect of preventing certain consumers from purchasing needed life insurance coverage.
LIFA will continue to support the rights of all consumers to purchase and sell life insurance policies and will oppose this legislation in any state and calls upon the state legislatures to reject this anti-consumer Model Act.
The Life Insurance Finance Association is a nonprofit, professional trade association and its members are comprised of individuals and companies involved in the life insurance premium finance industry. LIFA was founded to provide an open dialogue between and among life insurers, premium finance lenders, life insurance agents, brokers and insurance regulators, to provide consumer advocacy, and to foster a better understanding among participants in the life insurance and premium finance marketplace, state and federal policy makers, and the general public. For additional information, visit www.lifaorg.org.
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