NAILBA Perspectives Spring 2019 - Page 26

REGULATORY LIFE SETTLEMENT To best or not to best… Mining your book of business that is the question… Or is it? National Association of Insurance Commissioners is continuing to draft an update to the model suitability regulation. They are deciding whether to include an explicit “best interest” provision which has sparked debate between different factions, but we are not convinced it matters. Commentary on model suitability regulation Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit, or for more information. DISCLAIMER: This article is provided for educational and informative purposes only and not for the purpose of providing legal advice. Readers should consult with their own legal and compliance counsels to obtain guidance and direction with respect to any issue or question. 26 Perspectives Q2 2019 Much ado about nothing? Perhaps unlike the profound choice confronting Hamlet on whether to go on with life, the question of whether the updated model law should include explicit versus implicit best interest requirements may be the proverbial distinction without a difference. There are legal and practical reasons why the fight at the NAIC over the best interest label may be much ado about nothing and indeed might serve only to underscore reasons why we oppose any change to the model suitability regulation that may head inexorably towards a reincarnated Department of Labor fiduciary rule. We question why the need for this disruptive and litigiously potent regulation when all agree suitability is working. Any creation of a uniform standard across the wide spectrum of financial service providers runs headlong into legitimate historical differences between insurance and investment providers, products, and services. We contend the annuity marketplace is vibrant, evidence of harm to consumers is dubious, and danger of unintended consequences from tampering with long established regulatory standards is high. Academic debate Most industry trade groups surprisingly endorse the work of the NAIC working group, while a handful of others have tried to tap the brakes. Most recently groups are debating whether the NAIC should use the words “best interest” or stop short of using those actual words while still adopting equivalent standards. We see the debate as mostly academic and the NAIC draft proposal will be interpreted as “best interest” regardless of whether that term is used or not. Since the rule calls for placing consumer interests ahead of agent interests, that unto itself will be interpreted as best interest, for there is no sliding scale of interests between agents and consumers and thus putting client interests first is dictating that agents adhere to a quasi-fiduciary standard. Beyond that, the proposed rule uses other loaded phrases and lingo inextricably tied to best interest, such as a requirement for agents to “act with reasonable diligence, care, skill, and prudence” and make various disclosures including material conflicts of interest. And to the extent there is doubt, the record being compiled during deliberations over adoption of the regulation provides ample ammunition that this regulation is for the purpose of imposing a best interest or equivalent standard upon insurance agents. Turning insurance agents into quasi-fiduciaries We are steadfast in our view that the NAIC should refrain from modifying the model suitability regulation because a best interest standard, whether explicit or implicit, will inevitably turn insurance agents into quasi-fiduciaries which is exactly what industry worked so hard to defeat under a deeply flawed and now-discredited DOL fiduciary rule. The NAIC proposal, no matter how well intentioned, is simply a warmed-over version of the DOL rule that will lead to overly conservative financial decisions, reduced availability of products, costly lawsuits, and potential reversal of otherwise sound transactions. For more on why “not to best,” and our alternative proposal, visit Chris Orestis With over 23-years in insurance and long-term care industries, Chris Orestis is Executive Vice President of GWG Holdings, and a nationally known senior care advocate, as well as expert on life settlements and long-term care issues. He is a former DC lobbyist, industry speaker, and author. Contact Chris at [email protected] Millions of seniors every year abandon life insurance policies without understanding it is an asset that has considerable secondary market value. On an annual basis, there is over $200 billion of in-force death benefit owned by seniors who would likely qualify to settle their policy in the secondary market. As many as 9 out of 10 universal life policies are in danger of being lapsed or surrendered, and the abandonment rate for term policies is also quite high. Seniors are prone to throwing away one of the most valuable assets they own because they don’t realize how the secondary market value could help them address the unique financial challenges of retirement and health care brought on by aging. These challenges are a subject too often ignored until it’s too late. The challenge for advisors is, how to help someone use insurance-based solutions when they are an automatic decline because of their age and health? Well, for millions of seniors the answer can be found in an existing life insurance policy. Life settlements has evolved over the last decade into a well-regulated, mainstream financial tool for seniors. More advisors are coming to realize the important role this transaction can play for their clients in circumstances where financial need intersects with advancing age and declining health. One of the best ways to find clients who could benefit most from this solution comes from mining your existing book of clients and aging policies. By engaging in a systematic policy review process, you will find unrealized gold before you receive lapse or surrender notices. Who are ideal policy review candidates? Senior clients in declining health who are looking for financial help with retirement and LTC costs Policies in immediate danger of lapse or surrender and may be abandoned if action isn’t taken Policies without critical illness or LTC conversion riders Underperforming UL policies Aging Term life policies reaching conversion deadlines LTCi policy owners on claim By identifying which policies could be eligible for a settlement, you will rescue policies before they are abandoned. This process creates financial solutions for your clients from policies that have in-force for years. The policy review process then continues as an ongoing lapse-prevention business practice, building an ongoing revenue stream and new profit center out of old business. Policy review value chain Value for IMO: Deliver a no-cost business process to BGA’s that helps generate recurring revenue and agent loyalty. Value for BGA: Deliver a no-cost business process to agents that will analyze and track books of business on a monthly basis to prevent lapse or surrender of life policies, generate recurring revenue, and leads for new sales from old clients. Value for Agent: Deliver new value to policy owners from an overlooked asset, create funding solutions for immediate retirement and long-term care costs, keep renewal rates up by preventing policies from being lapsed or surrendered, expand new sales opportunities, and create new, recurring revenue streams. Value for Policy Owner: Access the value of a policy before they would lapse or surrender allowing them to address retirement and long-term costs with an asset, they already own without spending any money. 27