Thursday, April 30, 2009

Action Packed

Here are just a few items that many insurance issues in the news this week.

On April 30, as this item is being written, the National Association of Insurance Commissioners is conducting a hearing on credit scoring that includes scheduled testimony from Neil Alldredge of the National Association of Mutual Insurance Companies, Indianapolis, and Birny Birnbaum, an NAIC funded consumer representative with the Center for Economic Justice, Austin, Texas.

Birnbaum has argued for years that the NAIC needs to pay more attention to credit scoring and how it is used by insurers. He says that that importance has increased in a time of financial crisis when through no fault of their own, consumers may have credit scores lowered as the value of property declines.

Property casualty insurers counter that credit scoring is one important tool that they have to make sure that there is sufficient underwriting that keeps companies both solvent and insurance affordable.

On April 29, Kathleen Sebelius’ baptism by fire as Secretary of Health and Human Services began with a calm, honest assessment of what Americans could face with the H1N1 virus, nee swine flu. The possibility of a pandemic is frightening but Sebelius’ demeanor during an H1N1 press conference did instill confidence that there is someone at the helm that is capable of coordinating an intelligent response to the flu outbreak.

Also on April 29, members of the Senate were given a primer on the pros and cons of life settlements. The debate over life settlements has more energy than a waterspout over the ocean. It just spins and spins and spins. Some of the takeaways during the informational life settlement hearing of the Senate Special Committee on Aging sponsored by U.S. Sens. Herb Kohl, D-Wisc., and Mel Martinez, R-Fla., include:
--Fred Joseph, Colorado securities commissioner and president of the North American Securities Administrators Association reminding the committee that life settlement can enhance policyholder value but also have significant risks and thus, securities administrators are “the local cops on the securities beat.”
--James Avery, president-individual life insurance at Prudential Financial, representing the American Council of Life Insurers, explaining the fundamental principle of insurable interest and the genesis of stranger-originated life insurance. Simply put, according to Avery, “STOLI schemes are wagering or gambling.” And he says that seniors may face unexpected tax consequences from income due to the forgiveness of premium financing loan indebtedness.
--Michael Freedman, senior vice president of government affairs for Coventry First, noted how life settlements have given policyholders an additional option to lapsing or surrendering a policy. The added option, he told senators is particularly important because at least according to one assessment, 88% of life insurance contracts are surrendered. Life settlements offer fair market value to contract holders, according to Freedman. Freedman also notes that Coventry discloses to consumers alternatives to life settlements such as borrowing against cash value and accelerated death benefits but also notes that many insurers prohibit agents from talking about life settlements.
--Mary Beth Senkewicz, deputy insurance commissioner with the Florida office of insurance regulation, noted the importance of protecting life insurance and its tax exempt status. Senkewicz expresses concern that life settlements and STOLIs may endanger this tax exempt status. Interestingly, she points out that in 2008 the mean face value of viaticated policies in Florida increased from $89,000 in 1997 to $2.5 million in 2008. Senkewicz calls for STOLI to be banned at the federal level.
--Michael McRaith, Illinois Director, offered insight into the development of model legislation by the National Association of Insurance Commissioners, as well as efforts by individual state insurance departments.
--In written testimony, the National Conference of Insurance Legislators, Troy, N.Y., called for a balance to “safeguard seniors and properly oversee the industry, and that “transparency, disclosure, and accountability are key components in regulating the market.” The written testimony includes comments from NCOIL president James Seward and a New York state senator, about how an NCOIL model law defined STOLI as illegal and includes a 2-year contestability period.

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