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NAIC could soon go after captives

Regulatory Agencies
by Leon Langlitz
Few young adults poised to buy life insurance?
Few young adults poised to buy life insurance?

The idea of captive entities, which are now used by many in the life insurance industry, has been a controversial one for some time, but it seems that regulators may move to crack down on their use in the near future. That, in turn, could leave many in the lurch in terms of how they handle their finances.

When it comes to how the National Association of Insurance Commissioners approaches the regulation of captives overall, new president Adam Hamm says that everything will be considered, according to a report from The Wall Street Journal. Hamm said that the NAIC will go into a "deep dive" to make sure that the body has contingencies in place which will allow policyholders to receive their benefits even in the most disastrous of circumstances.

For their part, life insurers generally say that their captives are well-funded and would be able to pay policyholders, but nonetheless the NAIC is approaching the issue with significant caution, the report said. If it turns out not to be the case, it could leave a potentially large number of people holding the bag for a company which has not done its best to ensure they are properly protected.

Is there a timetable?
Right now, there's probably no way for the NAIC to approach such an issue with any kind of expediency, given the amount of things that need to be considered before any changes are even suggested, let alone put into place, the report said. Hamm told the newspaper that any meaningful changes might be as much as two years away, especially because there are a number of other regulatory changes that may be put into place in the interim as well.

Life policy issuers will have to keep close tabs on this and other aspects of the industry going forward, as regulators now seem likely to move toward tighter controls not only of their sector of the insurance industry, but others as well. The more they do to protect themselves from anything that might draw the ire of state or federal regulatory bodies in the future, the better positioned they will be to succeed in whatever new environments come to exist within the next few years.

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