Is the life settlement market in trouble?

According to National Underwriter,the Washington State Division of Securities has issued an alert stating that life settlement investments are securities, and as such can only be sold by licensed securities salespeople or broker-dealers.

The notice, “Considering Selling Life Settlement Investments?”, defines a life settlement investment as follows: “After a life settlement contract has been created, the contract, or an interest in it, may be sold as an investment. In the case of life settlements, an investor may purchase a whole life settlement contract or a fractional interest in a life settlement contract. In the case of fractional interests, investors typically rely on a provider or broker to administer the contract.”

And why might they be  securities?

“Life settlement investments often fit the definition of a ’security’ under the Securities Act of Washington, chapter 21.20 RCW. Among other things, the definition of ’security’ includes an investment contract. Under the investment contract test, a security exists when there is an investment of money in a common enterprise with the expectation of profits to be derived primarily from the efforts of others. A life settlement investment often constitutes a ’security’ under the investment contract test and may be deemed a security on an alternative basis.”

Some producers may believe this is 151A all over again. Is this the case?

Maybe.

One thing worth noting is that this alert wasn’t issued in a vacuum. In late July, MarketWatch reported that the U.S. Government Accountability Office had warned consumers to avoid life settlements because the lack of clear state regulation of the transactions.

And on July 22, 2010, the SEC issued a press release stating the recommendations of its Life Settlement Task Force: that life settlements are securities, and should be regulated as such.

Just as 05-50 eventually led to the SEC’s Rule 151A, the actions of certain states can lead to national measures taken against a wide swath of producers’ business. These recommendations, from the SEC task force release, certainly sound familiar:

• Consider recommending to Congress that it amend the definition of security under the federal securities laws to include life settlements as securities.
• Instruct the staff to continue to monitor that legal standards of conduct are being met by brokers and providers.
• Instruct the staff to monitor for the development of a life settlement securitization market.
• Encourage Congress and state legislators to consider more significant and consistent regulation of life expectancy underwriters.

What do you think? Do Washington state’s actions and the task force’s recommendation throw up a red flag? Or are the producers involved in life settlements already largely covered by securities licenses, seeing as how they’re involved in such a complex market? Is this cause for concern? Or is it merely a formality?

Share your thoughts below!

This guest post comes to us courtesy of Dean A. Hill, an independent life and health agent in Michigan who specializes in individual health and small to mid-sized business planning. He founded Brightside Consulting in 2005.

Now more than ever, we must remain positive about our role and maintain clarity of purpose in our daily dealings.  The mere peddlers of product will certainly fade in to the background, making way for the true thought leaders and health plan navigators of our time.

If you are excited about this, please read on.  If the skepticism remains, we wish you well.

The final decision on how we are compensated in the future is, in many ways, yet to be determined.  Rather than reacting, we can respond to reform through our actions and interactions with clients and prospects.  Through these conversations and deeds, we can position ourselves as industry experts who just happen to sell health insurance as a byproduct of our role.

If we can paint that picture with our clients and prospects, then the “commission question” becomes inconsequential.  We become their consultant, not their agent.  We become their advocate and business partner.  Advocates and business partners not only will be guaranteed a living – they will be guaranteed a life.

A case in point

Several years ago, I worked with a client who owned a chain of retail auto parts stores.  Many of their employees were morbidly obese, and the sedentary nature of their job didn’t help this problem.

We worked with the client to obtain a nutritionist and registered nurse through a local nonprofit organization, who would come and speak with the employees. The cost was nominal.  Over the course of several months, they held sessions to educate employees about basic nutrition.  My wife and I attended the meetings as well, as a show of support and as an example to the employees.

In the end, a young store employee weighing in at 300-plus pounds decided to change the paradigm.; through the process, we discovered that he was a trained chef, but had never quite understood the mechanics of nutrition in the kitchen.  He set a goal that he wanted to meet the weight restrictions of sky-diving – and within six months, he did so.

I am humbled to have been given the chance to partner with a client who understood the need to do what we did.  I am also proud to be a health insurance agent who can find themselves in the position to help companies and change lives.

What you can do

Take the time to understand your clients now, more than ever.  Become students of their business, talk to their employees, and learn to genuinely appreciate the role they play in being an economic engine in your community, city, or state.  This mindset will translate to permanent relationships that will stand the test of health care reform, and ultimately generate more business and opportunities for your firm.

Now, go help someone!

Dean A. Hill can be reached at dean@thinkbrightside.com.

Over the past few months, I have seen an unprecedented number of doomsday rhetoric in the trade and mainstream media.

SEC’s 151A spells an end to the independent distribution channel. PPACA spells an end to the independent health insurance agent, to long term care insurance, to Medicare Advantage.

(OK, that last one, about Medicare, was ours.)

When you take a step back and look at the big picture – not just in the insurance industry, but as a whole – things look even worse. While we’re not yet technically in a double dip recession, we appear to be headed in that direction. The modest job growth we saw this past spring seemed to be a product of 411,000 temporary Census positions. According to a July 2post on Time magazine’s Curious Capitalist blog, 1 million Americans simply stopped looking for jobs in June, removing them from the unemployment rolls, but not from unemployment. Consumer confidence is dropping at the fastest rate in 15 years. Housing prices started to recover, then slumped again.

Phew! I want to take a nap just thinking about all of it.

Yet it’s too easy to get lost in all of this. It would be ideal if I could vow to never read another news article again. As the editor of a national business-to-business publication, that would be a silly vow indeed. So instead, I keep this in mind: Until things actually fall apart, until I lose my job and then can’t find any work and fail to have enough money for groceries and get evicted and live on the streets – I’m not going to worry about all that.

That’s not to say I won’t prepare. I’m no ostrich. But it’s too easy to whip myself into a frenzy about the downward spiral that I haven’t even yet found myself in.

And here’s the point at which I relate this all back to you. Whether health care reform means no more agent, or regulations mean no more insurance, or housing prices slumping mean no more civilized society – I don’t know. Neither do you. The best course of action, I’ve heard, is preparing for the worst while putting one foot in front of the other. This month, we explore the benefits market with the results of our 2010 Employee Benefits Market Study, and our associate editor, Heather Trese, poses the question to which I alluded earlier: Is Medicare Advantage undergoing a transformation for the worse?

But don’t let all that deter your progress. If you’re employed today, and selling policies, the best you can do is keep moving forward. Your positivity and confidence will be rewarded tenfold once things do look up.

And I’m no economist, but I believe they will.

Now that the Dodd-Frank bill has passed the Senate, you may be wondering: What does this mean for me?

According to National Underwriter Life & Health, “H.R. 4173 provisions would affect the standard of care that applies when insurance agents and brokers sell investment products, create a Federal Insurance Office (FIO) at the U.S. Treasury Department,  give states of domicile more authority over regulation of reinsurers, impose new standards on the rating agencies, classify indexed annuities governed by National Association of Insurance Commissioners standards as state-regulated insurance products, and impose new suitability standards on sellers of annuities.”

There are eight major components of the financial reform package:

1. Fiduciary responsibility
2. Financial designations
3. Federal insurance office
4. Optional federal charter
5. Financial stability oversight council
6. Consumer financial protection bureau
7. Senior investor protections
8. Equity indexed annuities

So how do you feel this package will begin to transform your practice over the next few years – if at all? Share your thoughts and comments here, and watch our for upcoming coverage from the Summit Business Media life and health group.

Well, the battle (this battle, at least) has finally come to an end. Yesterday, the U.S. Federal Court of Appeals ruled that the SEC didn’t properly analyze the rule’s effect on the indexed annuity market, and tossed out 151A once and for all.

That’s right – if you haven’t heard it already, here it is: Indexed annuities will remain state-regulated, and remain classified as insurance products.

So to celebrate, we’ve gathered the most recent links on the event. Feel free to add your own!

The Battle of 151A: The Indexed Annuity Community Takes on the SEC (National Underwriter Life + Health)

U.S. Court of Appeals Vacates 151A

Federal Court of Appeals Vacates SEC Rule on Indexed Annuity Contracts

SEC Rule 151A Vacated by D.C. Circuit Court of Appeals!

Court Tosses Rule 151A

D.C. Circuit Court Vacates Rule 151A as Arbitrary and Capricious

And, of course, the Agent’s Sales Journal 151A Resource Center.

Update: Here is the official order to vacate Rule 151A.

Last week, the fight to keep indexed annuities state-regulated made a huge step forward when House conferees approved the Harkins amendment to the financial services bill H.R. 4173. That’s good news for agents who have been selling indexed annuities as insurance products and want to continue doing so – the SEC’s Rule 151A, which was passed in 2008 and originally set to go into effect on Jan. 12, 2011, would have regulated indexed annuities at the federal level, as securities, and led to a world of trouble for the popular product’s current distribution system.

Now, all the remains is to sit and wait for the passage of H.R. 4173 in the Senate – but it looks like Democrats are still pushing to get the support they need for the bill, which has beenpassed in the House and reconciles the differences between the House and Senate versions of the Dodd-Frank Wall Street Reform and Consumer Protection Act bill.

But even though the passage of H.R. 4173 would now mean a victory for the indexed annuity camp, it may not be all roses and sunshine. For one, the financial services bill includes a number of issues of concern for producers – for instance, the creation of a Federal Insurance Office,

And Huffington Post blogger Shahien Nasiripour recently wrote about how the Harkins amendment could end up hurting, not helping, seniors.

So what do you think? Is this the inclusion of the Harkins amendment sweepingly good news? If you sell indexed annuities, are you breathing easier, or are you holding your breath to see whether the financial services bill will actually make it through the Senate? And do you think that it’s a bright spot in what could be an otherwise game-changing bill? Share your thoughts here!

So it appears that President Obama is taking some steps to make sure carriers and employers don’t use the oncoming health care reform as an excuse to make things more costly on everybody.

First, the White House released a set of rules and regulations aimed at discouraging employers from cutting health benefits or raising the cost to employees.

“The rules limit the changes that employers can make if they want to be exempt from certain provisions of the health care law passed by Congress in March,” writes New York Times reporter Robert Pear. It seems that if a company wants grandfather status – health plans in place earning exemption from the reform rules and regulations – they’ll need to be careful about the measures they take to keep costs at a minimum.

Then, on June 22, Obama met with the CEOs of more than a dozen major insurance carriers to warn them against hiking rates simply because they could.

“There are genuine cost drivers that are not caused by insurance companies. But what is also true is that we’ve got to make sure this new law is not being used as an excuse to simply drive up costs,” reported the Washington Post on June 23. “The CEOs here today need to know that they’re going to be required to justify unreasonable premium increases.”

Some groups, such as AHIP, call this a move in the right direction that, if followed, would allow consumers and other industry critics to see that rate increases aren’t just a result of corporate greed. When the cost of care goes up, so must the cost of coverage.

And it’s not just a veiled threat on the part of the President – starting next year, the Department of Health and Human Services is set to begin working with states on annual rate increase reviews, demanding carriers to provide reasoning for “unreasonable” changes. The definition of “unreasonable” is somewhat up in the air – though a recent study by the Kaiser Family Foundation suggests that increases of 20 percent of more aren’t uncommon in the individual market.

So what do you think? Will the guidelines in place help curb unnecessary rate increases and unreasonable activity on the part of employers? Or is it simply smoke and mirrors that will fail to protect consumers from the fallout of reform? Share your opinions here.

I have a confession to make: I’m a little tired of health care reform. Writing about it, hearing about it, soliciting and editing stories about it – it’s kind of getting old. How do I stop writing the same types of leads over and over again? How do I make this topic interesting and fresh?

That’s a pretty heavy confession for the editor of a business-to-business magazine, given that my No. 1 task is making industry issues easier for you to understand, and helping you succeed in the face of these issues. And there has been no industry issue bigger than health care reform in recent memory (at least my recent memory).

All that being said, I gently remind myself that I don’t really need to make it interesting and fresh. That what my lead says is only important to me – what’s important to you is what’s in this bill, how it affects you, and how it affects your clients.

In talking with industry experts and producers, I’ve heard nearly as wide of a variety of opinions as there are people in this world. While putting together a recent story about our 2010 Health Market Study, I spoke with one agent who’s been in the business for more than 30 years and who called himself very conservative. His friends and colleagues are very conservative, too. As a result, he’s really ticked some people off – because he’s all for health care reform. In fact, he said, his only problem with what’s been going on for the past nine months is that Congress hadn’t actually done anything.

Well, at least one agent’s problem went away in late March, when the health care reform legislation was actually passed and President Obama put his signature on it. But then many more problems arose for many more agents – as in, what’s next? And when do these things take affect? And what’s in this bill anyway? And are we still going to have jobs? And oh my gosh, the rate increases will be unbelievable!

One thing’s for certain: All bets were off when we were conducting our annual Health Market Study and putting together this year’s Health Insurance Selling Guide.

So what we’ve done this year is a little bit different from the way we normally approach our annual health insurance package. First, we published the results of the 2010 Agent Media Health Market Study – but we kicked off this year’s Health Insurance Selling Guide with a breakdown of the reform bill’s key components, what they entail, and when they take place. We also offer a more complete version of this timeline, which includes information about the Medicare and Medicaid-focused provisions.

And on our podcasts page, you can find our interview with Kathy Donovan of the Insurance Solutions Group of Wolters Kluwer Financial Services, who talked about what’s happening more immediately with the health care reform bill.

I may be tired of health care reform – but I bet you’re not.

After speaking with Dave Harvey of the International Foundation of Employee Benefit Plans about the health care reform legislation’s treatment of medical loss ratio rules on group plans, I wonder: Will the market simply adjust? He compared it with the travel industry of just a few years ago:

“I think there’s probably going to be some changes as far as how agents are compensated with the loss ratio requirements and what have you, but that’s more of an evolutionary than a revolutionary aspect of health care reform,” said Harvey. “It’s sort of like, if you remember a few years ago, travel agents were largely paid by commissions payable by airlines on tickets, then they said, ‘We’re not paying on commission anymore.’ Travel agents figured out there was a way they could charge fees. I think we will see the same thing evolving in the insurance broker market if remuneration gets changed. Agents will adapt to it in any number of ways, but I don’t think an analogy in terms of travel agencies is that far removed.”

We spoke with Harvey about Agent Media’s 2010 Employee Benefits Market Study (Agent Media is the publisher of the Agent’s Sales Journal). The IFEBP helped come up with many of the questions on the study, which is intended to help us take a closer look at the way that group and voluntary benefits producers are grappling with changes that are already here and those yet to come. For a look at where we were last year, you can check out the 2009 Employee Benefits Market Study.

We’ll be taking a closer look at the results of the 2010 study in August, but until then, we want to hear from you. How do you see the market reacting to changes in the MLR rules? And what other aspects of health care reform do you think will effect your group and/or voluntary benefits business? Leave us a comment below.

Are you an active agent licensed to sell life and/or health insurance in the states of Florida, California, or Texas? Then we want to hear your thoughts on what types of information would help you better do your job in these states. We’re currently planning to roll out a series of state-specific resource centers and e-newsletters geared toward agents in just those states (with other states planned for later release). While we have some idea of what we’d like to do – but we really need to know what your needs are.

Are there issues in one state that may not be present in another?

Are there pieces of information you find difficult to track or gather in your state?

Are there pieces of state legislation that you’re concerned about, or wondering about?

In other words, what does it mean to you to be an agent in your state – whether it’s Florida, California, or Texas – so we can help you do your job?

You can comment here or, if you prefer a more confidential dialogue, email me at cpellett@sbmedia.com or our associate/regional editor, Heather Trese, at htrese@sbmedia.com. We want to hear from you!