THE WALL STREET JOURNAL. WEDNESDAY, AUGUST 8, 2006 © 2006 Dow Jones & Company, Inc. All Rights Reserved. Business World / By Holman W. Jenkins Jr. eee Life Insurers Face the Future, Grudgingly ate continues to shower blessings hiding ilness to get coverage, then flip» industry's best roadmap to surviving the ping the policy to an investor Yor a size- future able payment. Fraud aside, though, the You can't venture deeply into this, industry also worried about its “lapse” debate without hearing solemn reference a to “insurable interest” (the principe that a beneficiary should have a stake in the well-being of the insured). In the next breath usually comes a nod to the holy of holies, Britain's Gambling Act of 1774 (which made betting on the lives of fear of the life Insurance indust ‘wondering how to get the *viatical” genie ‘back into the bottle. Faithful readers will recall that ginned. up Latin nomenclature applied to deals in If such policies are instead kept in ‘which investors would take over the life oree by outside investors, well, oops. insurance premiums of terminally sick CEO Johnny Johns of Protective Life patients (frequently AIDS patients) and Corp. likens itt finding termites in your collect the death benefits when they died. basement and hoping i's only a few Happlly for one party to these deals, termites, His firm no longer sells certain many of the patients are still alive, — high-dllar policies to the over-f crowd, junds for small in- thanks to new drugs. Not so happily, “That's the zone where there's the most vests. A.M. Best, the insurance rating some investors feel cheated, and some: danger,” he tld investors in March, agency, has even’ come out with best times were. practices guidelines for packaging life Alife insurance policy Is the property of Congress using the tax code to no single life represents more than 3.33% the insuree, and he or she ean sell it to stamp out secondary trading in ife of the value; make sure many diseases somebody else. policies. Obligingiy, New York state regu: are represented so a miracle cure for one ‘Lo, by the time of our second column ators recently issued an “opinion” won't devastate bond holders. ‘on the subject, the business had given making it illegal for investors to offer itself a new name, “Ife settlements.” It upfront fees or rebates to customers he industry's “insurable interest” now was geared toward buying high- willing to take out policies for the purpese scruples, at bottom, grew out of ‘value policies from older folks who might of reselling them. It's unclear, however, fear of insurance policies being hhave had a health reverse but still had whether the New York ruling would writen atthe behest of homicidal benef. Several years of life expectancy re- survive challenge under settied Jaw ciaries who planned to hasten their ‘maining. German investors were particu- assuring policy owners a property right in payoff. That concern is nullified as the larly keen thanks to favorable tax laws. their policies. business has becomes institutionalize. ‘Atlast count, more than 20 German funds Life insurers and their trade groups The stark residual 1s the industry's hhave been set up to in recently opened a second front, asking displeasure at having its pockets picked Sale insurance commissioners to redraft by thse exploiting its reiance on lapsed their “model law” to ban *investor-inith based pricing and, perhaps as well, ated” life insurance. But not even this exploiting its failure adequately to check ‘dea commands majority support in the on the medical histories of applicants. industry, where some insurers worry it Insurers may wish the problem would ‘Would undermine a thriving existing busi- go away, but it won't leaving them only ness of using loans to help qualified the choice to tighten up their under- Bt the principle had been established, S ‘ome insurers still daydream about insurance policies into bonds: make sure clients buy lange-value policies. writing. But they can at least applaud ‘depending on whether Congress kills the themselves for easting enough doubt on estate tax (the motive for many pur- the life settlements industry that, so far, chases of high-dollar Ife Insurance) and their existing book of business has not other boomer financial considerations. one belly-up. Insurers may soon begin to ‘All along the insuranee industry has Notice a happier ending, in which the been disgruntled about this new market- existence of a secondary market actually place. One good reason was a suspicion that a few people buying insurance were makes life insurance a more attractive ‘is unwelcome peroration may be the product. Tne Punusnen’s Sut Or Tw Revmir Does Nor GoxsriuTe Ox Imp Avy EnooRStHext On Sronsonsi Or Any Prooucr, Stet, Gonpany On Oneanzaron {Cestom Reprints (609)820-4881 PO. Box300 Princeton, MJ. 08543-0900. DO NOT EDIT OR ALTER REPRINT/REPRODUCTIONS NOT PERMITTED #21240 DOWIONES _