February 28, 2005 Edition   |    Back to Table of Contents   |   View Previous Issues

Insurable Interest On NCOIL Agenda

By Jim Connolly

State legislators will tackle the issues of insurable interest of life insurance, the affordability of prescription drugs and broker disclosure when they meet March 3-6 for the spring meeting of the National Conference of Insurance Legislators in Hilton Head, S.C.

An NCOIL resolution opposes efforts to expand states’ insurable interest laws to allow third parties to make such life insurance purchases. The resolution is being introduced by Rep. Larry Taylor, R-Galveston, Texas.

The resolution urges other states "not to do what Texas did," says Rep. Craig Eiland, D-Galveston, Texas. The definition of insurable interest was expanded in Texas and now there are investor-owned life insurance products being sold, he says. "The big picture deterioration of insurable interest is a concern," he adds.

"The biggest concern is expanding insurable interest in a way that undermines the central concept of the connection between the beneficiary and the insured. [In third-party purchases] the owner and the beneficiary have no relationship," Linda Lanam, a vice president with the American Council of Life Insurers, Washington, explains.

Insurers are concerned about "the law of unintended consequences" and the effect that it may have on the life insurance product, she adds.

Currently, North Carolina and Tennessee have adopted language that broadens the definition of insurable interest, and Texas already had language that was sufficiently broad to allow the use of investor-owned life insurance. Virginia, on the other hand, has narrowed language defining insurable interest.

Lanam says that since most of the investor-owned life insurance transactions are private placements, it is difficult to track them and how they have affected life insurance markets in the states where they are permitted.

At press time, LILAC Capital, Nashville, a proponent of investor-owned life insurance, could not be reached for comment.

Resolutions addressing the availability of prescription drugs are being sponsored by state Representative Brian Kennedy, D-Hopkinton, Westerly, R.I.

One resolution encourages Congress and the Bush administration to address the "significant price disparity in the international trade of brand-name prescription drugs by creating a safe, legitimate program for drug importation that includes both the current U.S. personal use policy and a retail/wholesale component or by negotiating trade agreements with other industrialized nations."

The U.S. personal use policy permits an individual to import for personal use a 90-day supply of prescription drugs through mail-order pharmacies and other venues.

A separate resolution on the same issue encourages the Canadian Minister of Health to continue to allow the importation of medications by U.S. consumers and not to "take actions that may have serious health implications for individuals accessing medications from Canada."

States including Rhode Island have passed laws that enable consumers to continue to import medications from Canada.

Kennedy says he and other legislators in his state constantly hear complaints over the cost of prescription drugs. Rhode Island allows nonresident licensing of pharmacies and that licensing has been extended to Canadian pharmacies, he says, adding there is the possibility it may be extended further to include Ireland, the United Kingdom and Europe.

The reason this option is important, Kennedy asserts, is because "there are Americans who now must decide whether to buy food and gas or prescription drugs."

He says the argument that drugs imported from abroad are not safe is a faulty one because pharmaceutical companies send prescription drugs over the border to begin with.

The resolutions seek to address opposition to importation from the Bush administration as well as the possibility that the Canadian government may establish guidelines that would require Americans to have a doctor’s visit in Canada before receiving prescriptions from Canada, he says.

Ultimately, according to Kennedy, legislation passed in Rhode Island and other states that permits importation of prescription drugs could end up in the courts. The Food and Drug Administration has indicated that such a practice is not permitted. However, Kennedy says, "there is not a lot of confidence in the FDA right now."

In addition to these issues, legislators also will discuss broker compensation and fiduciary responsibility and what legislation, if any, should be introduced in state legislatures, says Susan Nolan, executive director of NCOIL, Troy, N.Y.