Consumer advocates say regulators should recognize the potential value of a healthy secondary market for life insurance policies when they update the Viatical Settlement Model Act.
The consumer advocates spoke here at the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo., at a consumer liaison session.
Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, and an NAIC-funded consumer representative, said secondary markets can do for the life insurance market what they already have done for the U.S. mortgage market and other markets.
The secondary market has helped homebuyers by attracting more capital to the mortgage market, Birnbaum said.
For consumers of life insurance, the rise of a healthy secondary market would provide a competitive alternative to nonforfeiture values and surrender values, Birnbaum said.
The recent rise of "speculator-initiated life insurance is certainly not something I would encourage," Birnbaum acknowledged.
But stifling the secondary market to drive out the speculators would hurt consumers, Birnbaum said.
Birnbaum was particularly critical of proposals to restrict premium financing.
Insurers had no problem with premium financing when it involved financed single-premium credit insurance, Birnbaum said.
Life insurers that combine aggressive sales practices with policies designed using high lapse rate assumptions are causing arbitrage opportunities that might go away if insurers stopped using such high lapse rate assumptions, Birnbaum argued.
Bill Newton, a consumer representative with Florida Consumer Action, Tampa, Fla., said he has seen lapse rates of 30% or higher.
By addressing this issue, insurers and regulators may be able to avoid "draconian" restrictions on policies, Newton said.
