NAIC Regulator Conflict Probe Ends

The National Association of Insurance Commissioners said an outside law firm it hired to look into allegations of conflict of interest by its members has given it a clean bill of health.

Bryan Cave, LLC based in Kansas City, Mo., conducted an internal investigation into the approval process related to the adoption of the Viatical Settlements Model Act by the NAIC, which found that the process used by the group passed muster, the organization said.

While some approved of the findings, at least one consumer representative and an industry representative questioned the objectiveness of the investigation.

The NAIC said “the model was accorded open debate and unbiased consideration and that the adoption of the model act by the NAIC's Life Insurance and Annuities “A” Committee was unbiased and not subject to undue or improper influence.”

“We were confident going into the review that the model amendments had been subjected to thorough and open debate, and we have been looking forward to confirmation of those facts. We can now focus on getting this model introduced and adopted by the states,” said NAIC President and Kansas Insurance Commissioner Sandy Praeger in a statement.

The law firm interviewed all 12 members of the “A” Committee which was developing the model, according to Scott Holeman, an NAIC spokesperson.

Bryan Cave attorneys “reviewed the process to see if it was (1) open and deliberative, and (2) that members made decisions based on information received from all sides,” Mr. Holeman added. But, at press time it had not been confirmed what other “relevant documents” in addition to meeting minutes had been used in the review.

The conflict issue followed a letter last September from consumer representatives criticizing the closeness of some commissioners to the life insurance premium finance industry, including former North Dakota Commissioner Jim Poolman.

In particular, the letter cited questions regarding Mr. Poolman's oversight of the development of the Viatical Settlements Model act as well as concerns about his hope to find a job in the industry. Additionally, attachments to the letter raised concerns over industry campaign contributions made while Mr. Poolman was chairman of the “A” Committee overseeing the process.

Trade groups contacted by National Underwriter said they had not been interviewed during the internal investigation.

Lynn McCreary, a Bryan Cave partner who headed up the investigation, could not immediately be reached for comment.

In a statement, Mr. Poolman, now running his own consulting business based out of Bismarck, N.D., said, “I am glad this whole episode is over, and I am not surprised with the results.”

He added: “I have always known there were no conflicts of interest. This is something just ginned up by those in the viatical settlement industry who don't want to be further regulated. I am disappointed by their tactics, but it comes with the territory. There was a lot of hard work and effort put into this legislation by many, and I am glad that I and the process have been vindicated.”

Life settlement and life financing representatives see the model's development and the ensuing investigation differently.

The partner chosen to head up the investigation is a former Met Life employee, said Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla. Among her other credentials, Ms. McCreary's biography said that she was previously vice president of MetMor Financial, a mortgage subsidiary of Met Life, New York.

Mr. Head questioned whether someone who came out of the life insurance industry could look impartially at the issue.

He also noted that in the NAIC's record of model acts, pre-2004 there are 30-35 pages of records on the viatical model, but post-2004, there is one line describing work that is being done on the model.

So, he said, “I don't think it adds an ounce of credibility to the model on the table now.” And, Mr. Head continued, “we're going to scoff at it” when the model is proposed in state legislatures.

Since “I don't understand what the process is” and how a determination was made, it is difficult to comment on it, said Scott Cipinko, executive director of the Life Insurance Finance Association, Atlanta. Those involved in the development of the model should have been asked to comment, he added.

“This confirms what we have maintained since the model was adopted. The NAIC allowed for extensive discussion and debate and gave all sides the opportunity to have their voices heard,” said Bruce Ferguson, senior vice president-state relations with the American Council of Life Insurers, Washington.

“The NAIC's careful deliberations produced a Viatical Settlements Model Act that would address the most prevalent form of STOLI, which is a transaction initiated by third-party investors lacking insurable interest for the purpose of settling the policy in the secondary market.”

Gary Sanders, senior counsel for law and government relations with the National Association of Insurance and Financial Advisors, Falls Church, Va., said that while he cannot speak for the investigation's conclusions because NAIFA was not included in the investigation, “our perception was that the process [of the model's actual development] was thorough and went on for quite some time. It seemed like everyone was heard.”

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said he was glad that the NAIC was able to “clear the air over allegations made against Jim Poolman.” He noted that Poolman was involved in pro-consumer issues for many years.

And he added that although he opposes the NAIC model, when it is raised in state legislatures, he will be able to discuss the model itself.

A conflict-of-interest policy needs to be developed, Mr. Birnbaum said. Such a policy could require commissioners who participate in leadership positions at the NAIC or as committee heads to sign an agreement in which they agreed not to accept industry positions tied to issues that they had worked on. Failure to comply with the signed agreement would result in a monetary penalty, he added.

Bill Newton, executive director of Florida Consumer Action Network, Tampa, Fla., said that even if nothing illegal was done during the development of the viatical model, there is still an issue of perception and “an appearance that there was a bias. And that was a problem.”

“If he [Mr. Poolman] had taken the donation and recused himself, it would have left the process clean,” Mr. Newton added.