SOURCE: Life Insurance Settlement Association

March 14, 2008 06:00 ET

Life Insurance Settlement Association: A Rushed Process and a Bad Outcome for West Virginians

ORLANDO, FL--(Marketwire - March 14, 2008) - On behalf of the Life Insurance Settlement Association, LISA Executive Director Doug Head released the following statement today:

If Governor Manchin signs West Virginia Senate Bill 704, as expected, he will complete a line of poor decisions and a bad process which will lead to the denial of consumer property rights for West Virginia residents unequalled in the country. It is difficult for outside observers to believe that this happened with so little comment or awareness in the press or by the West Virginia public. But it is understandable when one realizes that the bill was introduced on the last possible day, had less than fifteen minutes of hearings or discussion in either chamber, and was rushed through the two houses. This is a strategy proponents of this legislation have tried in other states because they don't want a real examination of the issues. But, to date, it has only worked in West Virginia.

Senate Bill 704 makes it illegal to sell one type of personal property for five years after you purchase it, unless the consumer provides certain evidence. What type of property? Your life insurance policy.

An industry exists throughout the country which has brought billions of dollars of extra value to consumers who have unwanted or un-needed life insurance that is about to lapse or surrender. Moreover, it has been functioning with no known complaints in West Virginia. The process of selling an unwanted life insurance policy is called a Life Settlement. Consumers in Life Settlements are customarily paid three to four times what a life insurance company would pay for a surrendered life insurance policy. But that option will soon be off the table for West Virginia residents. As a national industry group, our association supports responsible regulation of the Life Settlement industry and has worked with the legislatures of many states to encourage proper regulation. West Virginia needed a law, but not this rushed, bad proposal, of which we were not aware until it was too late.

The proponents of SB 704 claim that its 13,000 words, and thirteen new sections of law, are a simple tool designed to streamline life settlement regulation and to stop a practice called stranger-originated life insurance, or "STOLI." The bill is based on a badly conceived, very controversial and poorly processed Model Act of the National Association of Insurance Commissioners (NAIC). The NAIC Model has only been passed by one other state -- North Dakota. The former Commissioner of that state was the original author and has since resigned to work as an insurance industry consultant. North Dakota passed the bill in March of 2007 and no other state has done so until West Virginia. North Dakota regrets that decision, according to the Chair of the Legislative Committee that passed it. This Model has not been adopted by any other state. In fact, even North Dakota recognized problems with the "Model" legislation and modified it. In California, recently there were five hours of Senate hearings on the issues in a comparable bill. In Ohio, there is a big ongoing argument. In Connecticut, there have been several lengthy hearings. In Iowa, discussions on approaches to the STOLI issue continued for weeks as they have in at least fifteen other states. Unfortunately for West Virginia consumers, the "Model" Act was rushed through a truncated, one-sided process in which the interests of consumers were never fully vetted or examined.

So what problems are created by this process?

The existing rights of West Virginia residents would be severely hampered by the passage of this bill. Insurance Commissioner Cline has suggested that, in 2007, about 70 residents took the opportunity to sell their life insurance policies for more than the insurer would offer them. Not a large number, but let's see how many sell in the next months. We do not believe that the life settlement option will be available if this bill becomes law.

The bill purports to merely deal with so-called STOLI transactions involving an investor inducing an insured to buy a life insurance policy solely for the benefit of that investor. This is already a violation of current West Virginia law. The bill further attacks STOLI through the indirect method of barring all policy settlements for a period of five years after policy issuance, except for a complex set of circumstances supposedly covering every possible contingency that might be legitimate. Not even good on paper, this method has the effect of creating a circumstance in which rights for all owners of policies are questioned and hampered for the sole purpose of preventing the dishonest conduct of a few. More disturbing is the fact that there is no evidence that a STOLI problem even exists in West Virginia.

Next, the bill would limit the number of companies that are available to buy policies by requiring an onerous bond requirement. Excessive and unfounded financial responsibility requirements have the effect of discouraging competition in West Virginia. These provisions either restrict entry into the market or tie up capital for the licensee. Both would lessen payment to policy owners in West Virginia.

Other approaches to regulation -- proven to work -- exist under less burdensome law in many states. We would be completely happy if West Virginia had taken up a law like that of Georgia, or Colorado, or many other states with proven experience in regulating this market.

Among the most troubling provisions in the bill are those that would criminalize actions of West Virginia residents, consumers and property owners, who fail to abide by its provisions against fraud; expansive provisions that they may not even know about, while the industry gets a slap on the hand. We do not believe that this was the intent of the legislature or proponents of this measure, but it is an example of the bad consequences of rushed legislation which is not carefully examined. The attempt to criminalize behavior of West Virginia consumers, while not penalizing the behavior of an insurance agent or a licensee under this bill, serves as an unwarranted measure of intimidation to consumers simply looking to sell their unwanted policies.

And what are the justifications for these provisions? The legislature summarizes the legislation (just so nobody knows what is really happening?) as "Regulating viatical life insurance settlements." It told the public when the bill was passed from the House:

"Members of the House voted to pass Senate Bill 704 (, which will regulate how insurance companies operate their businesses, require licensing of the company and brokers and work to limit fraudulent practices."

But last week, the American Council of Life Insurers (ACLI) -- BIG INSURANCE for most people -- praised this supposed regulation of their industry, which could send consumers to jail. "We hope state legislatures across the nation will follow West Virginia's lead and provide their consumers, especially seniors, with the same level of protection."

Something does not add up here, so let's summarize:

1.  No complaints are known to be coming from West Virginian consumers.

2.  The bill is written in obscure language that consumers will not
    understand, for example, calling a life insurance policy owner a

3.  The bill can send consumers to jail for fraud if they make a misstep.

4.  The legislature says that the bill will regulate how "insurance
    companies" operate.

5.  The life insurance companies love the bill as it "protects" seniors
    right out of their rights.

We believe that the process and the people's representatives have failed the people of West Virginia in passing SB 704. We sincerely hope that the Governor will intervene. For the future, we feel that West Virginia residents would benefit not only from a sensible discussion regarding these issues but also from a process that is a little less rushed.

Established in 1994, the Life Insurance Settlement Association is the oldest and largest trade organization in the industry. Its goal is to promote the development, integrity, and reputation of the life settlement industry, and to promote a competitive market for the people it serves. LISA now represents 171 members with a wide variety of interests in the industry. For more about the Association, visit

Contact Information

  • Contact:

    Doug Head
    LISA Executive Director
    PH: 407-894-3797
    Email Contact