It appears increasingly likely that 2007 will be a key year for the life settlements industry, as those within the industry try to fend off a proposed limitation they say will severely inhibit the market in the name of consumer protection.
"Our biggest challenge is the regulatory environment," said Ramiro Rencurrell, president of the Life Insurance Settlement Association. Specifically, Rencurrell was referring to a proposed change to the National Association of Insurance Commissioners' viatical model law that was approved by the Life Insurance and Annuities "A" Committee in December. That change would essentially place a 5-year moratorium on the sale of life insurance policies after their initial purchase.
The moratorium was proposed to help combat instances of investor- or stranger- originated life insurance, in which investors entice an individual to take out a policy–at times even funding the premiums–with the purpose of assuming the policy as quickly as possible and eventually claiming the death benefit.
Rencurrell said LISA is "in agreement" with the NAIC's opposition to such arrangements and understands the importance of preventing them, but feels that the NAIC is painting with too broad a brush on the issue.
"It's extremely anti-consumer," Rencurrell said of the proposed moratorium, explaining that it "limits the accessibility of the consumer to the settlement market."
The proposed moratorium comes at a time when the industry expects to continue its strong growth. Alan Buerger, CEO of Philadelphia-based Coventry First, said there is "more capital than ever" moving into the life settlements industry, and he expects strong results in 2007.
"We expect a great deal of growth, and we are gearing up for it," he said, adding that Coventry now has over 200 employees.
John M. Bragg, an actuarial consultant at John M. Bragg and Associates and former president of the Society of Actuaries, said that resolving the issues surrounding life settlements in 2007 should involve 3 basic principles: establishing a clear definition of what makes an acceptable life settlement, ensuring that policyholders are treated properly and maintaining the integrity of the life insurance product.
"All of the sub-issues," he said, such as the proposed moratorium or the public image of life settlements, "can be looked at through these 3 lenses, and proper solutions reached."
Rencurrell noted that the NAIC moratorium proposal is "pretty vague" and could limit the liquidity of the life policy as an asset, something he said might run afoul of federal court precedent that gives consumers the right to sell a life policy if they desire.
For companies like Coventry, Buerger said the effects of a moratorium being implemented wouldn't be felt immediately, but would take a toll down the road.
