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NAIC: Securitizing Life Insurance Settlements is Risky

Source: NAIC

Posted on 25 Sep 2009

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The relatively new phenomenon of securitizing life insurance settlements is drawing scrutiny from state regulators for potential risks to consumers in the financial marketplace, the National Association of Insurance Commissioners (NAIC) told Congress on Thursday.

Testifying before the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, NAIC Vice President and Iowa Insurance Commissioner Susan Voss cautioned lawmakers about such innovative investment schemes.

“Life insurance settlements are necessary transactions for some consumers, but they require appropriate regulation with a focus on disclosure and consumer protection,” Voss told lawmakers. “This oversight is critical, particularly as stranger owned life insurance, or STOLI, continues to emerge.”

Voss, who also regulates securities in her state, explained that “while such securitization is outside the jurisdiction of insurance regulators, we have concerns that securitization of life insurance settlements will incentivize would-be STOLI investors to attempt to expand the marketplace – much as securitization of mortgages helped dramatically expand that marketplace.”

Voss also raised concerns about the impact of securitization on policies that would otherwise lapse — requiring higher insurance premiums; and about the need to be certain that any securitization of life insurance settlements does not compromise the original policyholder’s rights and privacy.