State insurance and securities regulators yesterday appealed to members of the Senate for tougher oversight of life settlement transactions in order to curb abuse of senior citizens.
State insurance and securities regulators yesterday appealed to members of the Senate for tougher oversight of life settlement transactions in order to curb abuse of senior citizens.
The Senate Special Committee on Aging yesterday held a hearing with state regulators, members of the life insurance industry and representatives from the life settlements business to discuss regulation of the life settlements market.
The goal was not only to prevent abusive stranger originated life insurance fraud practices but to also examine the securitization of life insurance policies.
“We’re informing seniors that selling one’s policy is a complex transaction that can be filled with hidden pitfalls,” Sen. Herb Kohl, D-Wis., said at the hearing.
Often, participating seniors don’t know that their health records can be viewed by multiple third parties, and they don’t understand the tax liability or possible litigation that they may face for selling off the policies, he said.
State regulators pointed to their attempts to rein in abusive practices.
Florida, for instance, had proposed rules that required life settlement brokers to maintain fiduciary duty to the individuals who sold their policies on the secondary market.
However, each step forward in regulatory development is often countered by the life settlements industry, which according to regulators is uncooperative and attempts to block new rules through litigation.
“Even from the beginning, the regulatory framework for this industry has been convoluted,” Mary Beth Senkewicz, deputy commissioner of life and health insurance in Florida’s Office of Insurance Regulation, said during testimony before the committee.
She brought up the state’s legal tussle with Coventry First LLC of Fort Washington, Pa., which settled with the state for $1.5 million in 2007 following allegations that it had engaged in fraudulent or dishonest practices and that it dealt in bad faith with insured people selling their policies.
Last year, the state told Coventry that it would examine the company’s work site as part of the settlement and that it sought information on its settlement business in Florida and across the country.
But rather than comply, Coventry filed a motion for preliminary injunction, asserting that the Office of Insurance Regulation had no authority to review, regulate or examine the policies related to insured people outside Florida.
Although the federal court denied the motion last month, Coventry is appealing the decision.
Coventry pursued similar actions against Illinois’ insurance director, Michael McRaith, last year when the regulator asked for the company’s state-related records and information.
Mr. McRaith, who also testified, expressed concern that consumers often don’t anticipate problems such as income taxes on the cash payment they get for selling the policy or possible liability for the senior’s estate if the life carrier turns down the policy because of suspected fraud.
He suggested a revamping of Stoli regulation for cases in which settlement brokers induce seniors into buying policies to sell them on the secondary market.
Effective regulation calls for licensing of settlement brokers, regulation of the transactions, a minimum of yearly regulatory reporting by settlement providers and regulatory authority to examine and punish transaction participants, Mr. McRaith said during his testimony.
However, Michael Freedman, senior vice president of government affairs at Coventry, defended his industry against criticism and instead pounced on the life insurance industry as denying consumers access to the secondary market.
“Insurance companies have promoted legislation that has been criticized as ‘anti-consumer’ and ‘protectionist’ by state legislators and consumer advocates,” he said during his testimony. “All of these efforts are calculated to protect corporate profits at the expense of consumers.”
