Ask any life settlement broker or provider about the administrative processes involved in completing a life settlement transaction and the response you receive will likely be one of frustration on a good day and something resembling infuriation on a bad day.
Part of the reason why is simply because of the nature of an auction process and the detailed regulatory compliance requirements to complete a transaction. In the intermediated/broker secondary market, frequently these firms are going back and forth between the bidding licensed life settlement provider(s) and the policyowner/insured, and this takes time.
But another reason why is the nature of dealing with the insurance companies that issue the policies. Speak to any life settlement market participant at an industry conference and you’ll invariably encounter a rolling of the eyes and/or a raised eyebrow when discussing the process.
So, the life settlement market received a small, but not insignificant boost recently, as the National Council of Insurance Legislators (NCOIL), an association of state insurance legislators, made some amendments to its Life Settlement Model Act at its annual meeting in San Antonio, TX, just before the Thanksgiving holiday in the US.
The NCOIL Model Act is one of two Model Acts that serve as the basis for the regulatory environment of the secondary market in the US (the other being the National Association of Insurance Commissioners’ Viatical Settlements Act), and the inaugural version of which was adopted 24 years ago to the month. Any changes to it are usually significant for the industry.
And now, life insurance companies in states that had adopted the NCOIL Model Act as their regulatory framework – so, most of them: “shall accept an original or facsimile or electronically delivered copy of such request for verification of coverage and any accompanying authorization signed by the [life insurance policy] owner,” according to section 11 B.
Additionally, section 11 D adds that: “The insurer shall, upon request by the owner or the owner’s authorized representative, send confirmation of change of ownership or beneficiary via facsimile or electronic mail”, and section 13 A 10 now says: “with respect to an insurer, deny legal effect, validity or enforceability of any signature, contract or other record relating to a life settlement transaction solely because it is in electronic form.”
The tweaks have been welcomed by the industry.
“We are pleased that these amendments have been made to the NCOIL Life Settlement Model Act,” said John Dallas, CEO at Berkshire Settlements and Chair at industry group, the Life Insurance Settlement Association (LISA).
“While it is true that these amendments benefit our members and the market at large, I would point out that this also benefits the American senior, who has, for too long, been caught up in the administrative back and forth with regards to the accepting of electronic documents.”
The amendments were sponsored by Rep. Forrest Bennett (OK) and NCOIL’s Life Insurance & Financial Planning Committee passed the amendments.
“I was very pleased to see a consensus reached on the amendments to the Life Settlements Model Act,” said Rep. Carl Anderson (SC), who chaired the Life Insurance & Financial Planning Committee at the meeting.
“I look forward to the Committee continuing its work in my home state during our Spring Meeting in April.”
NCOIL reviews its Model Acts approximately every five years; the Life Settlements version was readopted by the NCOIL Executive Committee on 9th March, 2014 and 17th March, 2019, but has not seen any amendments since 2007.
This time, LISA was actually hoping for more amendments. At the NCOIL Spring meeting in April, LISA had pushed for a maximum 21-day turnaround from life insurers, which did not make the cut this time. Currently, the licensed provider must notify the insurance carrier that a life insurance policy has become subject to a life settlement transaction, but there is no requirement on the carrier to respond within a certain time period.
Assuming NCOIL sticks to recent form, the next time the Life Settlements Model Act will be up for review will be in 2029. Until then, at least, from a regulatory perspective, further change is unlikely, but in the short term, it is over to the state legislatures to implement the changes to the Model Act – or not.
“Amendments to NCOIL’s model acts become relevant only if and when a state legislature chooses to enact or amend their corresponding state laws, or a state insurance department issue a regulation, based on the updated model statute,” said Brian Casey, Co-Chair of the Insurance Transactions and Regulatory Practice Group at Locke Lord LLP.
“The responsibility for adopting changes to model acts lies with the state legislatures. If a state legislature decides to amend its laws to reflect NCOIL’s updates, it must go through the legislative process – drafting, debates, and then, enactment. Once changes are enacted into law or incorporated into state regulations, it is typically the responsibility of the state insurance department (overseen by the state insurance commissioner) to enforce the updated laws or regulations. This will not happen overnight.”
Still, a win is a win, as they say. And, for Dallas, the amendments should, when enacted by the states, provide a boon to an industry that has recently been on a growth trajectory.
“The secondary market for life settlements is growing over time, in terms of the number of policies transacted and face value. But far too frequently, we have had situations where the policyholder decided not to sell because they were frustrated with the process. These amendments should reduce these situations where a transaction falls away, meaning that more American seniors will realise the benefit of the life settlement market.”
