6-Month Life Settlement Outlook: More Growth, More Regulation

In an attempt to clear up the confusion, the National Association of Insurance Commissioners introduced new amendments to its existing Viatical Settlements Model Act in June 2007. These were proposed as a way to combat the practice of purchasing insurance policies only to sell them in the secondary market.

But the proposed changes were met with industry alarm and controversy. Much controversy centered on language that proposed a 5-year ban on certain life settlements in the secondary market. Many financial professionals and industry organizations, including the Life Insurance Settlement Association and the Life Insurance Finance Association, voiced concerns that the amendments have the potential to affect negatively both consumers and the life settlement industry.

The National Conference of Insurance Legislators issued its own version of the Life Settlements Model Act. The NCOIL Model Act proposes a new definition for STOLI and has been more widely accepted by industry professionals, who believe it presents a more clearly defined definition of STOLI and better protection against fraud.

A changing regulatory atmosphere. Since introduction of the NCOIL and NAIC model acts, a number of states have already enacted legislation aiming to regulate the life settlement industry.

This includes 5 bills based on the NAIC model and five based on the NCOIL model. Other states are opting for legislation using a combination of both acts.

Industry professionals have applauded the bills based on NCOIL's proposed guidelines, and more such legislation will likely be enacted.

Meanwhile, professionals are continuing to speak out against STOLI, and they are calling for states to reevaluate legislation that could present life settlement industry barriers. With the introduction of each new piece of legislation, expect these professionals to continue fighting to strengthen guidelines that help curb STOLI practices.

Getting educated. The industry's growth plus the increasing attention on the industry will continue bringing issues to light that still need resolution, including regulatory matters. In the area of STOLI, for instance, more new legislation will be introduced. Expect a push for more uniform standards that effectively address STOLI and aim to stop fraud in the marketplace, protecting both consumers and the professionals aiding seniors in financial planning goals.

All this requires continued education. To learn more, professionals should visit industry-focused web sites, including those of NAIC, NCOIL and LISA, and also get involved in industry events, courses, panels and webinars.