Conflict Problems? We're Looking At Them, Says NAIC

The nation's insurance regulators in a belated response letter have told consumer representatives they are "evaluating the facts" concerning complaints that some National Association of Insurance Commissioners members have conflicts of interest.

Their Oct. 15 letter follows a Sept. 24 complaint from 11 consumer representatives concerning the activities of certain commissioners in drafting NAIC model laws.

The consumer groups' letter requested that recently adopted revisions to the Viatical Settlement model law be revisited because of allegations that former North Dakota Commissioner Jim Poolman had conflicts of interest when he spearheaded the NAIC effort.

Mr. Poolman has vehemently denied the allegations, arguing the merits of the viatical model and charging that the life settlement industry was waging a campaign against him.

He did, however, acknowledge receiving a 2006 campaign donation from a Sara Bachrach, who he confirmed is the wife of Ira Brody, a partner with InsCap, New York (see NU, Oct. 1). InsCap was involved in discussions during the development of the model, although Mr. Poolman maintained that there was nothing illegal about the contribution. InsCap is involved in premium financing and not viatical and life settlements, he added. Mr. Brody also contributed $15,000 to the North Dakota Republican party in 2006. Mr. Poolman is a Republican.

Life settlement and premium financing representatives say that, contrary to Mr. Poolman's statements, InsCap does have an involvement because the firm takes part in life settlements through trust agreements.

The model that was developed omitted life settlements used through trusts, and this could be seen as helpful to InsCap, they argued.

The NAIC is currently looking at the possibility of a new model to cover these transactions as well as new types of transactions that develop.

In its letter, the NAIC said it is "aware that allegations have been made concerning conflicts of interest related to the revisions to the model. The NAIC is addressing the allegations through appropriate channels and evaluating the available facts concerning these issues.

"You should also be aware that, independent of any issues related to the model, the NAIC and its members are currently in discussions concerning revisions to the conflict of interest policy. These discussions are ongoing."

The letter is signed by NAIC leadership. NAIC declined to comment on how allegations are being addressed or to provide details of the conflict of interest policy.

However, several regulatory sources said the policy had been discussed during the Commissioners Roundtable at the fall NAIC meeting and that it had been decided to give the proposed changes further work rather than to advance it.

The NAIC letter also discusses the merits of the viatical model, noting "many important consumer protection issues," including a five-year limitation on certain sales of life insurance policies and enhanced disclosure requirements.

Groups including the American Council of Life Insurers, Washington, and the National Association of Insurance and Financial Advisors, Falls Church, Va., support the model.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said the NAIC response really does not answer questions posed by the consumer groups' letter.

He noted that consumer advocates did not support the five-year ban on the sale of a life insurance contract, nor the "laundry list" of disclosure requirements as presented because the way it was set up would not clarify the transaction for consumers.

Mr. Birnbaum added that consumer representatives did not feel the model addressed stranger-owned life insurance, a transaction where a third party pre-arranges to buy a policy solely for gain.

And, according to Mr. Birnbaum, the NAIC is again discussing a major policy issue, a conflict of interest policy, behind closed doors, preventing input from constituents.

Bill Newton, executive director of the Florida Consumer Action Network, Tampa, Fla., also said he would have liked to see the process be more open. He said it was good that the conflict allegations are being addressed, and "I am looking forward to seeing the results."

Doug Head, executive director of the Life Insurance Settlements Association, Orlando, Fla., said review of the NAIC's conflict of interest policy is a positive thing for the NAIC. He noted the concerns that had been raised with the model and the request of stakeholders, including the National Conference of Insurance Legislators, Troy, N.Y., to defer adoption of the model.