Legislature(1999 - 2000)
01/31/2000 01:12 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
January 31, 2000
1:12 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Joe Green
Representative Norman Rokeberg
Representative Jeannette James
Representative Lisa Murkowski
Representative Eric Croft
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 190
"An Act relating to viatical settlement contracts."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 190
SHORT TITLE: VIATICAL SETTLEMENTS
Jrn-Date Jrn-Page Action
4/13/99 794 (H) READ THE FIRST TIME - REFERRAL(S)
4/13/99 794 (H) L&C, JUD
4/19/99 (H) L&C AT 3:15 PM CAPITOL 17
4/19/99 (H) HEARD AND HELD
4/19/99 (H) MINUTE(L&C)
10/21/99 (H) L&C AT 1:30 PM ANCHORAGE LIO
10/21/99 (H) MINUTE(L&C)
1/14/00 (H) L&C AT 3:15 PM CAPITOL 17
1/14/00 (H) BILL HEARING POSTPONED
1/19/00 (H) L&C AT 3:15 PM CAPITOL 17
1/19/00 (H) HEARD AND HELD
1/19/00 (H) MINUTE(L&C)
1/24/00 (H) L&C AT 3:15 PM CAPITOL 17
1/24/00 (H) MOVED CSHB 190(L&C) OUT OF COMMITTEE
1/24/00 (H) MINUTE(L&C)
1/26/00 2005 (H) L&C RPT CS(L&C) NT 2DP 5NR
1/26/00 2005 (H) DP: HARRIS, ROKEBERG; NR: HALCRO,
1/26/00 2005 (H) SANDERS, BRICE, CISSNA, MURKOWSKI
1/26/00 2005 (H) 2 ZERO FISCAL NOTES (DCED, H.L&C/
DCED)
1/26/00 2005 (H) REFERRED TO JUDICIARY
1/31/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
VINCE USERA, Senior Securities Examiner
Division of Banking, Securities & Corporations
Department of Community & Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on CSHB 190(L&C) and answered
questions.
KATY CAMPBELL, Life and Health Actuary
Division of Insurance
Department of Community & Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Answered questions on CSHB 190(L&C).
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
P.O. Box 22085
Juneau, Alaska 99811-0805
POSITION STATEMENT: Answered questions on CSHB 190(L&C).
TERRY ELDER, Director
Division of Banking, Securities & Corporations
Department of Community & Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on CSHB 190(L&C) and answered
questions.
ACTION NARRATIVE
TAPE 00-5, SIDE A
Number 0001
CHAIRMAN PETE KOTT called the House Judiciary Standing Committee
meeting to order at 1:12 p.m. Members present at the call to
order were Representatives Kott, Green, Rokeberg and Kerttula.
Representatives Croft, James and Murkowski arrived as the meeting
was in progress.
HB 190 - VIATICAL SETTLEMENTS
CHAIRMAN KOTT announced that the committee would hear HOUSE BILL
NO. 190, "An Act relating to viatical settlement contracts."
Number 0084
REPRESENTATIVE ROKEBERG presented the bill. He pointed out that
before the committee was CSHB 190(L&C), Version M, which had
passed out of the House Labor and Commerce Standing Committee
[which he chairs and which sponsored the legislation]. The issue
was brought to that committee's attention the previous year by
the Division of Banking, Securities & Corporations (DBSC), as
well as by constituents and others primarily in the insurance
business in Alaska.
REPRESENTATIVE ROKEBERG introduced related terms. Viatical
settlements are contracts that historically have involved a
chronically ill person who has an insurance policy that he or she
wishes to sell on a discounted basis before his or her death,
thereby receiving the funds and being able to use them prior to
death. He said these contracts are, in turn, sold to investors
on a discounted basis. The viator is the person who is insured
by the policy. The viatical settlement provider is the "middle
man" who packages these arrangements. And finally, agents or
brokers are those who sell either entire policies, or fractional
shares thereof, into the marketplace.
REPRESENTATIVE ROKEBERG mentioned what he called "cross-
jurisdictional interpretation" and work with the National
Association of Insurance Commissioners (NAIC) on establishing a
statutory or regulatory scheme for this. He pointed out that
case law is split in various states' jurisdictions about how to
regulate this new phenomenon. There is controversy about whether
it is a securities-type of contract, to be administered and
regulated by a state's securities division, and/or an insurance
contract, to be administered by a division of insurance. To his
understanding, approximately 26 states now have dual jurisdiction
in this regard.
Number 0315
REPRESENTATIVE ROKEBERG noted that the original HB 190 had
suggested the DBSC would administer regulations. However, a
number of people in the insurance industry and the national
association of viatical settlement providers had wanted insurance
overview as a "turf area." There is an issue regarding whether
to maintain state - rather than federal - jurisdiction over
insurance matters, and these are areas of great sensitivity.
REPRESENTATIVE ROKEBERG advised members that the system arrived
at - after a year and a half of work and several hearings in the
House Labor and Commerce Standing (HL&C) Committee - is
relatively simple. The system stipulates jurisdiction on the
sales of these contracts to the investor as securities or
investments. This is an area where there has been substantial
abuse. For example, on the Internet a person can find bogus
"guaranteed" substantial rates of return for these. There is a
real need for consumer protection.
REPRESENTATIVE ROKEBERG pointed out that another element combines
a viatical settlement, which relates to a chronically ill person,
with a life settlement contract, which allows a basically healthy
person to enter into the market and sell, at a discount, the face
value in the policy. If a man has a paid-up whole life policy,
for example, this provides the ability and the mechanism for
that. A person with a $100,000 or $500,000 fully paid-up policy
could sell it before death and use the money to put the children
through college or buy a house, for which this legislation also
provides.
Number 0514
REPRESENTATIVE ROKEBERG explained that the HL&C Committee had
decided to place Alaska in a situation where the consumer is
protected from an investment standpoint and regulated by the
DBSC. Furthermore, the relationship between the insured - the
viator - and the provider who packages these would be regulated
by the Division of Insurance, which historically has looked after
the interests of the insured and insurance regulations. Noting
that this is perhaps what generates some criticism, he said this
sets up dual jurisdiction only because it makes sense; it also
sets up, unfortunately, dual sets of regulations, which he
believes will be relatively modest.
REPRESENTATIVE ROKEBERG referred to the two zero fiscal notes.
He pointed out that the one from the HL&C Committee is to be
replaced by one dated 1/24/00 from the Division of Insurance.
Referring to the analysis in the latter, he expressed the belief
that the zero amount is justifiable because any dollars generated
will be offset by income. He deferred to representatives from
the Division of Insurance and the DBSC for further explanation.
Number 0612
CHAIRMAN KOTT noted other committee members present:
Representatives Croft, Green, Kerttula, James and Rokeberg. He
suggested experts available in person and on teleconference could
answer any questions that might arise. He then called on Vince
Usera.
Number 0673
VINCE USERA, Senior Securities Examiner, Division of Banking,
Securities & Corporations (DBSC), Department of Community &
Economic Development (DCED), said he had no prepared testimony
but would answer questions. He then reported:
Our approach to this was to ask simply for a change in
the definition of "security," to add in viatical
settlement interests, and ... to keep it as flexible as
possible, because this is an evolving field, changing
very quickly. And we can meet those changes with
regulations a lot more quickly than with further
legislation. ... Our regulations, for the most part,
mirror the legislative provisions that were in the old
HB 190, ... modified by some suggestions from the
Viatical Association of America [VAA].
Number 0756
CHAIRMAN KOTT asked whether the VAA endorses this particular
piece of legislation. He said he hadn't heard any reactions from
them.
MR. USERA answered:
I don't know if I can say they're endorsing; they have
no problems with it. ... We very carefully went over
every bit of it with them, and they pretty much
approved it. ... We've used all their definitions,
definitions that are pretty well mirrored by the
National Association of Insurance Commissioners. So, I
think we can say that they're in favor of the bill,
perhaps not going ... quite so far as to say they love
it.
Number 0813
REPRESENTATIVE GREEN asked, from the securities standpoint,
whether Mr. Usera sees a potential here for fraud.
MR. USERA replied that the potential lurks everywhere, and
without this legislation, there would be a lot of room for fraud.
The approach of the HL&C Committee, the Division of Insurance and
the DBSC has been that the Division of Insurance should oversee
the portion of the transaction covering the actual purchase of
the policy, thereby protecting the insured and those associated
with that side of the contract; the DBSC would take over the
securities end of it. He emphasized the hope of minimizing
fraud, noting that the DBSC's disclosure procedure requires quite
a bit of information before granting an exemption.
Number 0952
REPRESENTATIVE CROFT requested confirmation that the zero fiscal
note is because the division will establish regulations to
collect enough money to pay for the cost of administering these.
MR. USERA responded, "It won't cost us very much at all to
oversee these things, any more than what we're doing now."
REPRESENTATIVE CROFT asked about the analysis in the Division of
Insurance fiscal note, which stated: "It is unknown how many
registrations will be received and processed. Fees collected
will cover expenses. Zero fiscal impact."
MR. USERA clarified that he works for the DBSC, not the Division
of Insurance. He then stated:
We actually will charge $250 for each person, each
viatical settlement company coming in, and then $75 per
agent. That goes to the general fund and doesn't ...
offset any of our expenses at all.
Number 1003
REPRESENTATIVE JAMES pointed out that it affects the budget
process, then. If money comes in, it has to be appropriated, so
there would be a fiscal note.
CHAIRMAN KOTT added that it would be assuming someone does buy
into it and apply for the license.
Number 1021
REPRESENTATIVE ROKEBERG called CSHB 109(L&C) the "light version"
of the bill. He said Section 4 gives the DBSC authority by
adding "viatical settlement interest" in the definition of
"securities." Then the bill defines "viatical settlement
interest" and "viator." The DBSC has already drafted the
regulations, he pointed out. Therefore, any cost from that has
been absorbed by the DBSC in the general course of business. He
requested confirmation that in 1998 more than $1 million in
"viatical business" was written in Alaska.
MR. USERA clarified that it was in 1998 and 1999. Until his
division "kind of put a stop to it," the amount was $1.5 million
in policies sold here.
REPRESENTATIVE ROKEBERG said the division had stepped in and
issued a number of "cease and desist" orders to practitioners who
didn't have what the division believed was licensure. The HL&C
Committee had then stepped in because an area of commerce in
Alaska was stalled because of lack of regulation; it was their
judgment that the legislature needed to ensure that the
regulatory scheme was fair, proper and developed in a reasonable
manner.
REPRESENTATIVE ROKEBERG returned attention to the fiscal notes.
He said he had requested zero fiscal notes "for the obvious
reasons that befall all legislation that generates some kind of
fiscal notes." He believes the fiscal notes would be "de
minimis, if at all, and should be able to be handled through the
normal appropriations within each division and/or the expectation
that there would be some revenue generated." He suggested the
foregoing offsets any need for a fiscal note.
Number 1167
CHAIRMAN KOTT asked Mr. Usera to comment briefly on Securities &
Exchange Commission v. Life Partners, Inc. [discussed in a
document prepared by the DBSC titled "Policy Statement on
Viatical Settlement Contracts," in committee packets] and the
position that the state is taking.
MR. USERA said he thinks it is a poorly reasoned decision. He
believes the D.C. Circuit judges saw it as a way around the
ravages of AIDS [acquired immunodeficiency syndrome] and were
looking at the social utility, not the potential for harm. He
suggested they therefore made it fit within their view, and they
are the only ones who seem to think that way. He added that
every other state, practically, has either issued an opinion or
verbally stated the belief that it is a security.
Number 1233
REPRESENTATIVE KERTTULA pointed out that the original HB 190
required that information be provided directly to the buyers, so
they could make an informed investment decision. However, she
doesn't find that same language in the committee substitute (CS).
She inquired about protection.
MR. USERA replied that it is found in regulations. He mentioned
that he had copies of the disclosure forms which his division
will use, with seven pages of disclosures that they believe, at a
minimum, should be provided. If people read those, they will
understand a fair amount about the transaction.
Number 1267
REPRESENTATIVE ROKEBERG directed attention to page 2, line 20, of
CSHB 190(L&C), noting that the Division of Insurance, in drafting
regulations, is to address issues of privacy too. He suggested
that because of Alaska's constitution and the esteem for privacy
rights in the state, this is a touchy area as to how it can be
put together. For an investor, there is a question of how much
information can reasonably be expected about the viator in order
to make a reasonable judgment as to whether it is a decent
investment. Representative Rokeberg said the DBSC has already
drafted basic privacy provisions, and the important thing is
ensuring that the regulatory scheme is consistent.
MR. USERA agreed that privacy is already addressed in his
division's regulations.
REPRESENTATIVE KERTTULA emphasized that it depends on the
adoption of regulations, rather than being in the bill.
MR. USERA indicated his division had checked with the NAIC, which
has, on a national basis, come up with some definitions and is
wrestling with others; those are evolving. He then explained:
We might have to change the regulations quickly, but
that can be done more easily than ... drafting
legislation or pushing legislation through. And we're
always subject to the legislature's oversight on
regulations. I don't think it's any risk involved
there. We can probably pay more rapid attention to
changing demands.
Number 1396
CHAIRMAN KOTT pointed out that before investing in any type of
security, he himself generally asks for a prospectus and has a
pretty thorough understanding of the risk involved. He asked
whether Mr. Usera envisions circumstances under which the name of
the insured would be released.
MR. USERA replied:
Their name would not be released, not in this state.
... As I view it, it would be against the constitution,
a constitutional violation of privacy. We don't have a
prospectus per se, but we have our seven- or eight-page
disclosure, which does the same. We feel it educates
the investing public sufficiently that they can know
whether it's right for them or not.
Number 1443
REPRESENTATIVE GREEN asking whether it is legal, for example, if
he buys an insurance policy for himself, becomes ill, then
negotiates with the insurance company to provide discounted money
up-front. He also asked whether it is legal if another person,
in the same scenario, buys the policy for a discounted fee.
MR. USERA affirmed both.
REPRESENTATIVE GREEN suggested this bill, then, ensures oversight
so the viator, or someone representing him, hasn't duped the
purchaser into thinking the viator is more ill than he really is.
He requested confirmation that this bill doesn't change what is
already legal but instead provides oversight.
MR. USERA said this is already legal, then indicated the bill
protects both sides: the investing public and the company that
buys the policy and sells it to the investor. He expressed
uncertainty as to whether it is possible for the division to make
sure the insured isn't duped and given too little for the policy.
Number 1535
REPRESENTATIVE GREEN inquired about the possibility of changing
one's mind after a few days. He asked whether that is legal if
an agreement has been reached specifying the time in which to do
so.
MR. USERA said he doesn't know about the legality of that now.
Its legality depends on one's right to abrogate a contract. He
indicated the DBSC's regulations from the investment standpoint
would allow ten business days to recant.
REPRESENTATIVE GREEN suggested that would be between the insured
and the purchaser, not between the insured and the division.
MR. USERA affirmed that.
REPRESENTATIVE GREEN asked what would protect the purchaser if
the insured either benefits from a miracle drug or decides to
rescind this. He asked if that is where the DBSC comes in,
because this is a securities deal, not an insurance deal.
MR. USERA replied:
If you suddenly find that there's a miracle drug comes
along, and you're going to live forever, that makes it
a bad investment for [the purchaser]. However, ...
we're going to tell you to take a look at that. We
can't tell you that it's happening or going to happen.
We're going to tell you, "Think about it." The
evolving medical situation is something to consider.
It may be that the person has a life expectancy of five
years. All of a sudden, we find a new drug comes along
and it's ten years ... before you get a repayment on
your money, plus you're going to have to be paying out
on the premiums. ... It'd be a very bad investment.
Our disclosure makes sure you know about such things.
Number 1631
REPRESENTATIVE GREEN noted that this originally related to
viatical settlements but has gone beyond that. He suggested
there may be an expectation that the purchaser would have a
chance to make some money. He asked if anything protects the
purchaser.
MR. USERA answered:
We don't have anything in our packets that specifically
says the life expectancy of a 35-year-old man is "X."
But we will tell you that ... until the person dies,
you're going to have to wait for a return on your
money. And we'll tell you whether he's in good health
or bad health, and things to consider in making your
investment. I frankly don't see very many of the ...
"life settlements" for the moment, because I understand
that NAIC is changing that. ... It's too hard ... -
they're the insurance side of things - to quantify and
define. We've taken out any reference to terminal
illness that used to be in the viatical definition, and
we've put them all together; everything is a viatical
now. But if you're buying the policy of a 35-year-old
man and he's in excellent health, it may not be a good
idea if you're expecting a speedy return.
Number 1726
REPRESENTATIVE GREEN asked what protection exists once the
process is begun. For example, is an escrow involved and all
things must come to pass at the same time? He indicated he was
talking about someone trying to be dishonest.
MR. USERA explained:
The way it happens in many cases is the viatical
company will come to you, ... sell you not a policy but
sell you on buying a policy. And they'll ask you such
macabre questions as "What kind of policy do you want?"
"I'm looking for an investment ... in a 35-year-old man
with AIDS due to die in two years; those are my
specifications." Then they go find somebody who is
willing to part with his policy on those terms.
We have, built in to our system, a 90-day rescission
period: if they don't find somebody within 90 days,
they have to offer you rescission from the entire deal.
But the money doesn't actually change hands quite so
fast as you can go off to Bermuda before [the
purchaser] has had a good time to think about it.
REPRESENTATIVE GREEN suggested it is like an escrow, then.
Everything must come to pass at once, and the insured can't cheat
anywhere along the line until it is a "done deal." He stated his
understanding that the insured wouldn't get his or her money
until the purchaser was finished with the transaction.
MR. USERA pointed out that he has seen people cheated virtually
everywhere, although the division would try to minimize it.
"That's why we think it's a risky investment," he added.
REPRESENTATIVE GREEN asked whether the insurance company can
rescind this agreement as well as the insured can.
MR. USERA clarified that generally an insurance company isn't the
so-called provider. Generally, there is an insurance company and
the insured; then a person comes along and offers to buy the
policy and become the owner of the policy, for 25 percent, for
example; that person then offers to sell an interest in that
policy. The insurance company is separate, really not part of
the transaction as it will normally occur. He reemphasized the
desire to minimize cheating by having these regulations and
disclosure requirements, then concluded, "As it goes now, they
don't tell you a thing. They just tell you what a great deal
this is, and you could make 40 percent on your money ...."
Number 1877
CHAIRMAN KOTT voiced his understanding that the division's main
responsibility is ensuring that the investor has every bit of
information reasonably available to make a good decision. With
viatical settlements, the risk is that the person will live
longer than expected; the longer the person lives, the worse it
becomes for the investor. Chairman Kott inquired about
protection for the insured, provided by the DBSC or the bill, to
ensure he or she receives fair market value.
MR. USERA said that has been made the province of the Division of
Insurance, which should probably address it.
CHAIRMAN KOTT asked whether there have been any complaints in
that area regarding viaticals in Alaska.
MR. USERA replied:
No. They complain about us looking at them, more than
anything else. But we questioned most of the buyers,
most of the investors, and asked them such questions
as, "Was it explained to you that this was a sale of an
insurance policy during the contestability period, or
could be?" And they said, "What's 'contestability
period?'" That's the kind of thing that people need to
know, because at any time during that two-year period,
the insurance company can just drop it; they can refuse
to pay. So, contestability is one thing they need to
know; whether it's a group policy, because that has
some issues to it; what the premium is; how much [in]
premiums ... the viatical provider is going to escrow
... to pay the premiums coming up. ...
We can't tell them ... which way to go but what to
think about, and consider whether medical science today
is as hamstrung as it was 30 years ago - probably not.
And if a quick return on your money is what you're
looking for, then it may not be an investment for you.
Protecting the insured, I think, is a worthy goal, but
... I'll leave that to [the Division of] Insurance to
talk about.
Number 2046
CHAIRMAN KOTT recalled a similar financial relationship in the
banking arena, in which individuals can buy an elderly person's
mortgage, for example, at a discount. He asked whether the DBSC
oversees that as well.
MR. USERA replied, "Not in 'securities,' we don't. I don't
believe that the banking side does, but I couldn't say for
certain."
Number 2060
REPRESENTATIVE KERTTULA asked Mr. Usera to explain the
contestability period.
MR. USERA responded that the first two years of any policy are
known as the contestability period, and the insurance company can
decline to pay if the person commits suicide during that period
or has lied on the application. For instance, if a person with
AIDS has denied that, then turns around and sells the policy, the
insurance company can refuse to pay if they discover that fact
during the two-year period.
REPRESENTATIVE KERTTULA asked whether this is illegal anywhere.
MR. USERA said not that he knows of, although many people don't
like it. "It's something that we pretty much have to permit," he
added.
Number 2104
REPRESENTATIVE CROFT expanded on Representative Green's analogy,
suggesting the purchaser would approach a broker, not the
insured, looking to buy the insurance policy of someone in a
particular situation, for example. The broker has nothing to do
with the original insurance agent of the insured, he noted.
MR. USERA affirmed that.
REPRESENTATIVE CROFT asked if there are limits on profits.
MR. USERA said he doesn't think there are any limits, and he
doesn't know whether the Division of Insurance plans to set any.
He recounted how one Florida company had said they'd paid 45
percent of the face value of the death benefit to the viator.
However, audits of their financial records - done, he believes,
by Florida's division of insurance - showed the actual amount
paid was 22 percent. The difference wasn't accounted for
anywhere. On a $100,000 policy, they paid the person $22,000 but
claimed they paid $45,000, which was reported to the investor.
Mr. Usera surmised that it went "in the pocket," human nature
being what it is.
Number 2233
REPRESENTATIVE GREEN asked: Would the purchaser look to the
broker to buy a policy on a person with a particular medical
situation? Or might the purchaser look to the broker for several
insured people?
MR. USERA explained:
He can go a couple of ... different ways. A salesman,
let's say, for the viatical settlement provider, has
already bought ... your insurance policy. He can then
approach [the purchaser] and say, "Have I got a deal
for you!" And [the purchaser] could then say, "I'll
buy that policy, and I've got some more to invest, but
I'd really like to invest in a 45-year-old guy with
AIDS having two years to live; can you go out and find
me one of those?" So, ... there's two permutations on
the sales program.
Number 2268
REPRESENTATIVE GREEN stated his understanding that purchases are
made on individual policies, then, rather than on groups of
people with particular medical conditions, for example. Like
stock, a purchaser could buy part of it.
MR. USERA responded:
Right. Well, there's that, too. It may be that
there's a $100,000 policy is going to be split up among
ten investors, so they each have the right to receive
$10,000. They may pay $5,000 for that privilege. So,
there would be another permutation ....
REPRESENTATIVE GREEN asked if a purchaser would buy into a pool
of several insureds. He agreed with a suggestion that it would
be sort of a "death mutual fund."
MR. USERA said he didn't see why not, but they haven't been
packaged that way, to his knowledge, because there would be
different death dates and it would be too hard to determine. He
clarified that the pooling that goes on is ten people getting
together to buy one policy, for instance.
Number 2320
REPRESENTATIVE JAMES said she had been envisioning that people
buying these would become beneficiaries on the policies.
However, that isn't necessarily the case. There is a contract
that affects that, whether or not it is on the policy. She asked
who is named as beneficiary on the policy.
MR. USERA explained:
The owner of the policy gets to name the beneficiary.
And probably what happens most of the time is the
provider becomes the owner, the technical owner, who
then contracts to name you ... in exchange for your
purchase price. ... The deal may be they sell you the
entire policy and you become the owner - therefore,
entitled to name the beneficiary.
REPRESENTATIVE JAMES recounted how when her mother died, her two
life insurance policies were made out to the funeral home;
however, her mother had lived longer than she'd expected, and it
wasn't all covered. Representative James suggested that would be
a similar contract.
MR. USERA agreed in some ways it is very similar.
Number 2403
REPRESENTATIVE CROFT noted that with insurance, there can be a
stable investment and return because it is spread so widely.
However, in this case a purchaser is buying only one policy, and
could either make out well or really lose money. The problem is
the individual character of these.
MR. USERA concurred.
REPRESENTATIVE CROFT suggested that is why the lists of risks are
necessary.
MR. USERA said he envisions considerable administrative problems
in putting together an investment in a pool of life insurance
policies, whether it involves buying into a pool of investors in
a policy or buying one policy alone. He explained:
Normally what they'll do is they'll escrow an amount of
money to pay the premiums expected to be due. If the
person is projected to live three years, they'll put
three years' premiums aside, and those don't come out
of your pocket. Where the risk is, is that the person
lives for five years and you've got to come up with two
more years of premiums. That eats into your investment
as well, and there's no way to predict that. If the
person lives ten years, you're really getting hit, and
you could lose the entire investment by the person
living to a ripe old age.
REPRESENTATIVE ROKEBERG emphasized that the people involved want
to sell the policies. It provides a service so they can access
their money.
TAPE 00-5, SIDE B
CHAIRMAN KOTT called upon Bob Lohr, director of the Division of
Insurance, via teleconference; there was no response. He called
on Katy Campbell, requested a brief at-ease at 2:01 p.m., then
resumed the meeting immediately.
REPRESENTATIVE CROFT asked Ms. Campbell why it isn't simplest and
easiest to deal with one's own insurance carrier and just
purchase the policy at a cash-out value.
Number 0061
KATY CAMPBELL, Life and Health Actuary, Division of Insurance,
Department of Community & Economic Development, answered that
there is that option. Many insurance policies have an
accelerated death benefit provision that would allow an insured,
if terminally ill, to cash in, say, 50 percent - sometimes up to
100 percent - of the death benefit.
REPRESENTATIVE CROFT said one problem, then, is some policies
don't allow for it and some don't allow 100 percent. He asked,
"Also, often, you don't get as good a deal out of that? It's set
in the policy, and it's not what the market would give you?"
MS. CAMPBELL explained:
It's probably a better deal. ... If your insurance
company has that provision, they basically just
discount it for interest for the period of time that
your life expectancy is, so they would discount it six
months if you had a six-month life expectancy. It's
just not in all of the life insurance policies; it's
not a required provision. And in some cases, ... the
restriction that they be terminally ill, with 12 months
or less to live, is also a fairly strict requirement.
Some people ... have a life expectancy, according to
their doctor, for 36 months, and that provision can't
be used.
Number 0100
CHAIRMAN KOTT asked why more insurance companies don't build into
the policy a mechanism to afford the insured some kind of cash
buy-out.
MS. CAMPBELL said she believes it is becoming increasingly common
to endorse life insurance policies.
CHAIRMAN KOTT asked if Ms. Campbell believes more and more
insurance companies will put that in the form of an endorsement
in these policies.
MS. CAMPBELL affirmed that, then explained:
We see more and more endorsements filed to life
insurance policies ... as they are filed. They're not
necessarily endorsing a lot of the ... older policies,
but they're giving people that option in the newer
policies. And there's a tax benefit if it's sold to
someone if - a viatical settlement transaction and
accelerated death benefit as well - if they're
terminally ill, under the federal tax code that passed
in 1997. So, if they're terminally ill and it meets
those conditions, that death benefit that's paid out is
actually considered "death benefit" for tax purposes;
they're not taxed on it.
REPRESENTATIVE JAMES remarked on what an incentive that is.
CHAIRMAN KOTT asked whether that is dealing with the viatical
service provider.
MS. CAMPBELL answered yes, it can be, but it has to be very
specific. She indicated that in the Internal Revenue Service
(IRS) code, it is defined specifically as someone who is
terminally ill or chronically ill by the federal definition. She
agreed there is incentive to do that, then concluded by saying
"the insurance companies' endorsements have stuck with that
portion that still considers it a death benefit payout,
basically."
Number 0220
CHAIRMAN KOTT asked whether, for the insured, Ms. Campbell
believes it would be more beneficial to deal with the viatical
provider or that person's insurance company.
MS. CAMPBELL suggested it is individual choice, depending on
circumstances. Insurance companies sometimes have a provision to
accelerate only, say, 50 percent of the death benefit. A person
who feels he or she can get more through a viatical settlement
provider certainly has that option; the market is there.
Number 0256
REPRESENTATIVE GREEN asked whether those policies are just for
viatical situations or are available for anyone, even if healthy.
He further asked whether a person must suffer some sort of
catastrophic illness before this sort of thing can happen.
MS. CAMPBELL replied that a perfectly healthy insured who just
wants to sell his or her policy certainly can do that.
REPRESENTATIVE GREEN asked whether it can be a term policy as
well as a whole life policy.
MS. CAMPBELL said it can be, although it is certainly much
riskier to take a term policy. "Sometimes there's term to 65,
term to 95, you know, some of those that may be more likely," she
explained. "But it is riskier, and the investors need to know
that."
Number 0301
REPRESENTATIVE GREEN put forward the following scenario:
I bought a policy 30 years ago, and at that time, I was
going to live 45 years or whatever it was. And so my
cash value is growing through a whole life policy, but
it's still going to be way below 50 percent at this
time. And yet, if suddenly I become terminally ill,
... did I hear you say that the settlement could be
well above that, which would put it above the cash
value?
MS. CAMPBELL said yes, it could potentially be quite a bit higher
than the cash value, but it would depend on the state of the
illness. "Certainly, if you're healthy and you're doing that,
... it's very unlikely that you'll get something higher than the
cash value," she concluded.
REPRESENTATIVE GREEN responded, "But now, instead of another 30
years to go, I'm down to three months; so, in that case, I
should." He returned attention to the tax consequences and
asked, "If I, or someone who buys this policy, gets the amount
settled, that's not subject to tax? What about in a normal
policy I die. Is the total not subject to tax?"
MS. CAMPBELL answered that the death benefit paid under a life
insurance policy is not taxable.
Number 0386
REPRESENTATIVE GREEN continued, "I buy a policy for whole life.
I take a discounted amount. It's purchased by someone else. ...
Does that settlement that I've taken negate any future
consequences of the policy?"
REPRESENTATIVE ROKEBERG responded, "You aren't on the policy
anymore."
REPRESENTATIVE GREEN stated his understanding that the policy is
gone, then, when the settlement is made, and it is not taxable.
Number 0405
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development, spoke up via teleconference,
offering a partial answer. He referred to a Federal Trade
Commission (FTC) pamphlet on viaticals. He pointed out that it
says, under financial implications, "If you sell your policy to a
viatical settlement company, you may owe federal capital gains
tax on the difference between the payment you receive and the
amount you've paid in premiums. You may also owe state tax."
REPRESENTATIVE GREEN said the insured is the one who is possibly
subject to capital gains, then.
MR. LOHR concurred.
Number 0447
CHAIRMAN KOTT referred to page 2, subsection (b), of the bill,
where it says the provider, representative or broker must, among
other things, submit information required by the director. He
asked Ms. Campbell what she foresees that information to entail.
He noted that it is under AS 21.06, relating to the Division of
Insurance.
MS. CAMPBELL answered that the NAIC has fairly comprehensive
model regulations and legislation on viatical settlements, and
the intent was to follow their format for regulating these.
Examples of reporting include the date of the contract, the
amount of the death benefit, the amount paid for the policies,
what the source was, whether the coverage was individual or
group, whether it was within the contestability period, the
diagnosis code, and funding. All of the information relating to
the contract would have to be reported on a regular basis "so
that you could monitor the market."
CHAIRMAN KOTT referred to subsection (d), which read, in part:
"The director may examine a licensed viatical settlement
provider, representative, or broker, or an applicant for a
viatical settlement provider, representative or broker license."
Noting that the examination cost is being passed along to that
individual, he asked, "What would prompt you to examine their
books?"
MS. CAMPBELL suggested an examination could possibly be generated
based on the reports provided, for example, if there is any sign
that unusual transactions are taking place, that too little is
being paid for a contract, or that there are an unusual number of
certain types of contracts that raise concerns.
CHAIRMAN KOTT asked whether it would require a single complaint
or several, to the DBSC, to prompt an audit of the books.
MR. LOHR suggested Mr. Usera would be a better source on that.
Referring to the bottom of page 1, he said he believes a so-
called bright line sentence is designed to keep his own division
on the side of looking at the viator and the viatical settlement
provider; "securities" would take over thereafter, and he can't
speak to their threshold with respect to a complaint. Mr. Lohr
offered, however, to provide more information on the kind of
examinations the Division of Insurance would do and what would
trigger them.
CHAIRMAN KOTT requested confirmation that the director in this
section of the bill is the director of the Division of Insurance.
AN UNIDENTIFIED SPEAKER affirmed that.
Number 0515
MR. USERA explained that if a complaint came to the DBSC, they
would investigate it. In addition, they would pass the
information on to the Division of Insurance that the DBSC was
investigating the complaint.
MR. LOHR responded that likewise, his division would share all
information with the DBSC. Typically, the Division of Insurance
does two kinds of investigations of companies. First would be a
financial examination if there is any question regarding the
company's solvency or financial fitness. The other would be a
market conduct examination where there is reason to believe,
based on consumer complaints, that there is a problem; the
division would look at the company's claims practices and analyze
how they handle their business. It is quite typical of the
insurance industry to conduct those types of examinations, Mr.
Lohr pointed out. For companies located within Alaska, there is
a regular cycle of examinations. For companies located
elsewhere, the division coordinates activities with the states in
which the companies are domesticated - where they are located -
to avoid duplication.
Number 0673
CHAIRMAN KOTT asked if there would be a circumstance in which
both the DBSC and the Division of Insurance are looking at the
same viatical provider.
MR. LOHR replied:
I believe that could be the case with - exactly your
point - the viatical settlement provider in the middle,
because when they're facing the insurance end of the
transaction, we regulate them. When they're facing the
investment side of the transaction, I believe it's
regulated by "securities," and it could be one and the
same person or the same firm.
MR. USERA agreed there could be instances where both divisions
would be concerned. He added, "As I told you before, this one
outfit was not only cheating the investor but cheating the
insureds. That would be a concern to both divisions."
CHAIRMAN KOTT asked: If there are two entities reviewing this
particular service provider, would that individual or provider be
subject to two different penalties under the law?
MR. USERA answered, "It's possible. I would think that if this
comes up, we would put our heads together and not duplicate each
other's efforts, for one."
MR. LOHR added:
Absolutely. One advantage of having both divisions in
the same branch of government - the DCED - would be
that we would coordinate very closely. And Mr. Elder
and I have agreed on that already.
Number 0745
REPRESENTATIVE GREEN pointed out that some insurance companies
may require substantial investigation, plus there is a
possibility of litigation. The fiscal note could get large in a
hurry.
MR. USERA agreed there is always the risk of litigation, but it
would be no more than exists now for the division. As an
example, when they took the company mentioned earlier to task,
the company sued. Mr. Usera explained, "We negotiated out for a
$10,000 payment to us, and it was no cost. Generally, we won't
issue an order unless we've (indisc.--simult. speech) got the
book on them."
Number 0803
REPRESENTATIVE JAMES asked if this occurs over the Internet and
if any provision in the division's regulations ensures that these
kinds of activities aren't done improperly there as well.
MR. USERA indicated he would expect there to be some improper
dealings on the Internet; however, that is against the division's
rules already, although they have nothing specific to viaticals
on the Internet.
Number 0873
REPRESENTATIVE ROKEBERG expressed his understanding that 12 or 13
viatical settlement providers operate in the country who are
members of the National Viatical Association.
MR. USERA said there are others. For example, some buy up
insurance policies and sell them to their parent insurance
company as the investor; those aren't as widely known.
REPRESENTATIVE ROKEBERG suggested if someone is operating on the
Internet and in Alaska, and is a member of the national
association, that person would register to do business in Alaska.
MR. USERA added, "We have several networks that we belong to.
People that notice something on the Internet, they will tell us
if it's aimed at Alaska."
REPRESENTATIVE ROKEBERG said because of interstate commerce, one
question is the state's ability to regulate that. Having a
regulatory scheme in place forces legitimate providers to
register with the state, meet the regulations and pay the
licensure fees.
Number 0940
CHAIRMAN KOTT noted the arrival of Representative Murkowski.
CHAIRMAN GREEN asked whether, from the states that have adopted
such a law, there is any idea of the numbers, volumes or values
of the portfolios that would be subject to this type of
arrangement.
MR. USERA noted that in Alaska the total has been about $1.5
million. The company that sold that $1.5 million in face-amount
policies to the investors told the DBSC they had sold something
like $254 million. That is one company, he emphasized, which
isn't even the biggest provider.
Number 1030
REPRESENTATIVE CROFT asked whether there has been any circuit
court case disagreeing with Life Partners.
MR. USERA answered, "No. We would have gotten one up here if
we'd continued with litigation." Asked the reason for that, he
stated, "The SEC [Securities and Exchange Commission] just
decided they didn't want to tackle it anymore. I don't know."
REPRESENTATIVE CROFT asked whether there was ever a petition for
certiorari.
MR. USERA replied, "No, they dropped it."
Number 1053
REPRESENTATIVE ROKEBERG noted that the NAIC and counsel for the
viatical settlement association had testified at the HL&C
Committee hearing two weeks before. This has been actively
debated, including jurisdiction within state governments, privacy
issues, and whether it should be statutory or regulatory;
nationwide, one could flip a coin. He requested confirmation
that the most recently adopted statutory scheme is in Maine,
where they "went the security route."
MR. USERA affirmed that, adding, "They practically put it out of
business, but it's just very onerous legislation."
REPRESENTATIVE ROKEBERG said this is a huge dilemma with no
simple answer, and because of crossover, it is hard to know where
jurisdiction begins and ends. He concluded, "That's why we try
to be as clear as possible and as flexible as possible in the
bill, rather than being specific. Give ... both those divisions
the ability to come to grips with this issue so we can proceed
here."
Number 1147
REPRESENTATIVE GREEN asked if the divisions believe dual
jurisdiction truly improves the ability to reduce the number of
fraudulent claims. He also asked if they believe one division
could do it for less cost, perhaps.
MR. USERA indicated neither the DBSC nor the Division of
Insurance could do the entire job alone, because neither is
geared to do the other's job. "I think together we can do an
adequate job of policing the situation," he added.
MR. LOHR agreed neither could do it alone. He said the D.C.
Circuit's answer, from a social perspective, was wrong, although
he can't speak to legal aspects. The notion that no one would
regulate viaticals is simply not the right answer because of
significant potential for abuse without regulation by someone.
He acknowledged that whenever more than one regulatory agency is
involved, it is risky. However, the divisions should be held to
their pledge to cooperate closely with each other, and to make
sure there is neither overlap between jurisdictional schemes - in
regulation or practice - nor a gap in the middle, where someone
might be able to operate in some unregulated fashion.
Number 1234
REPRESENTATIVE GREEN returned attention to the fiscal note,
asking whether Mr. Lohr or Ms. Campbell believes passage of this
would create more work and therefore would cost more, or whether
the division could handle it within its existing budget.
MR. LOHR answered:
Representative Rokeberg has been most persuasive on
this point, and I do believe that the zero fiscal note
is accurate in the sense that it is a net zero for us.
That is, we believe that we will be able to cover the
cost of viatical regulation with the fees generated
from it; so it would be a net zero for us. And
normally when fees authority is granted, as it would be
in this bill - and then to be further fleshed out by
regulation - the statutory limit on those fees is the
amount necessary to cover the actual related costs of
regulation. And because of the existing authority with
respect to specific examinations - whereas it was
indicated earlier there might be significant costs -
those would be subject to direct going to the companies
involved. And on that basis, I believe a net zero is
an accurate estimate of the fiscal impact on the
division.
Number 1307
REPRESENTATIVE GREEN pointed out the difference, when the
legislature looks at fiscal notes, between those that are
revenue-neutral and those that cost a lot but generate a lot of
income; the latter would still be a zero amount, but would have a
significant impact on the way the budget is handled. He asked
whether either Mr. Lohr or Mr. Usera has a feel for how much
income and expense would be involved.
MR. LOHR answered:
On the insurance end, I believe ... the gross revenue
from viatical licensing would be de minimis. We'd
probably be talking ten or less licensees, at least
initially. And we'd be talking, initially, a part-time
clerk, which we believe we could absorb from existing
resources; it would not amount to anything approaching
a full-time person. And whatever demand there was
would taper off once the initial wave of applications
was received. Concerning the authority for
investigation, that is existing statutory authority.
Therefore, I don't believe it's implicated by this
particular bill.
Number 1373
CHAIRMAN KOTT asked Mr. Lohr whether the provider, representative
or broker would apply to the Division of Insurance for the
license and then not be subject to occupational licensing.
MR. LOHR said that is correct, to his understanding. The license
would be just like what Linda Brunette, the chief of DCED's
licensing section, issues to a life insurance sales person or
anyone else engaged in the business of insurance.
CHAIRMAN KOTT asked whether there were others waiting to testify;
there was no response.
Number 1425
REPRESENTATIVE ROKEBERG suggested that putting in statute that
the name of the viator - the insured - should not be divulged may
make some people rest easier on the privacy issue, particularly
as the bill finds its way to the House floor. He believes that
is one of the key issues here that would provide for consistency
between the regulatory schemes. It isn't a settled issue in
other states; however, it should be a settled issue here, because
there are other methods by which the investor can check on the
quality of the investment. Representative Rokeberg mentioned
testimony in the HL&C Committee that the investor could call the
insurance company and ask whether the company has a particular
policy, assigned by number, but that the insurance company would
be prohibited from telling the name of the insured to the
investor. Although he believes those provisions will be part of
the regulations, Representative Rokeberg said the question is
whether, as a matter of public policy, the statement should be in
the statute; that is a discussion he believes should happen.
CHAIRMAN KOTT asked if Mr. Lohr or Mr. Usera wished to comment.
MR. LOHR said he believes it is a legislative policy call.
However, if they wished to make that call, he believes page 2 of
the bill - beginning at line 16, where subsection (e) starts - is
permissive language with respect to the regulations generally.
And (e)(2) on line 20 could be fleshed out with a mandate about
what regulations should include regarding privacy, rather than
simply saying standards may be established. Guidance in that
area, or a mandate in that area, is something the division would
welcome.
Number 1622
CHAIRMAN KOTT said that was basically the direction he himself
was heading. He referred to page 2, line 16. [The beginning of
subsection (e), lines 16 and 17, read: "The director may adopt
regulations to implement this section, including standards for".]
Chairman Kott asked whether changing "may" to "shall" interferes
with any of the other provisions in paragraphs (1) through (9),
or whether the division can live with "shall" in all those areas.
MR. LOHR answered that the Office of the Attorney General had
advised him that "may" is preferable to "shall" with respect to
the regulations as a whole, based on a supreme court case,
Amerada Hess Pipeline Corporation v. Alaska Public Utilities
Commission. He said he cannot speak to the legal niceties of
that case. He then indicated the division certainly doesn't
object to a mandate with respect to privacy for viators or the
insured.
Number 1691
REPRESENTATIVE MURKOWSKI stated that the regulations of the DBSC
address the privacy issue, except as may be required in the
course of conduct of the responsibilities of the Division of
Insurance. She indicated uncertainty to what would be required
in the course of conduct of the responsibilities. She also
wondered if even that could be problematic.
MR. USERA indicated that he was compelled to put in an "easy
out," because there may be, in the course of an investigation,
the need to contact a viator, but the investigative files of the
Division of Insurance are completely confidential.
REPRESENTATIVE MURKOWSKI stated that she recognizes that there
probably does have to be an escape clause. She recommended that
maybe they say something about the confidential nature of those
investigative reports.
MR. USERA agreed to putting that in there.
CHAIRMAN KOTT mentioned that his comfort would be eased by
ensuring that the name of the individual would not be released to
the public.
MR. USERA assured the committee that it is absolutely protected
by the Constitution of the State of Alaska.
Number 1841
REPRESENTATIVE ROKEBERG emphasized that it would be a good idea
to add a prohibition to divulging the name to an investor or a
provider's broker or agent. He indicated that it is up to the
DBSC to create a scheme where there is some ability of the
investor to check the veracity of the actual existence of that,
independent of the broker.
CHAIRMAN KOTT asked if there was any more public testimony;
seeing none, he closed public testimony.
REPRESENTATIVE CROFT wondered if Representative Rokeberg wanted
the committee to hold HB 190 and add the provision.
REPRESENTATIVE ROKEBERG said that he doesn't think the committee
needs to hold the bill, but they can do a conceptual amendment
that adds the provision to the bill.
REPRESENTATIVE JAMES asked how the Division of Insurance is
informed of who the person is. Somebody has to know, she pointed
out, and there is that chance, if investigating the case, of
needing to contact the person who is insured. She indicated she
doesn't really have any problem with what is in the regulations,
and there is already a constitutional requirement for privacy.
She pointed out that it seems there is no need for the provision
unless they think it is politically correct and can, therefore,
get more votes on the bill.
REPRESENTATIVE ROKEBERG stated that it was not his intent. He
informed the committee that the reason for the issue is that it
is currently being debated by the NAIC subcommittee on viatical
settlements, because there has been a tendency to protect the
viator or the insured by prohibiting the release of his or her
name. He explained that the issue has to do with allowing more
disclosure of the name so the investor can make a better
determination about the quality of the investment.
REPRESENTATIVE JAMES referred to the scenario where there is a
direct relationship between the insured and the "lender." She
wondered, if the provision was added, if it would disallow the
knowledge between the investor and the person who is insured.
REPRESENTATIVE ROKEBERG referred to page 2, line 20, of CSHB
190(L&C), where it states, "viator and insured privacy
protection," and he indicated it relates to the insurance
company. He explained that the new provision should go in the
security section, because that is where they want to prohibit
public discourse about the name of the viator. The provision
should be prohibiting the people regulated by securities, the
investors. And those people authorized by the provider to do
marketing should be prohibited from knowing the name of the
viator.
TAPE 00-6, SIDE A
Number 0010
MR. USERA stated, "I would have no problem with that as long as
you gave us some 'out,' so we don't violate our own regulation by
doing our job; similar to the language that's in the regulations
would be entirely reasonable."
Number 0055
REPRESENTATIVE CROFT referred to the privacy issue and indicated
that the provision added in 1972 in the Constitution of the State
of Alaska states, "The right of the people to privacy is
recognized and shall not be infringed. The legislature shall
implement this section." He pointed out that the best reading of
it probably is that the privacy clause requires that the items
that have been discussed be kept confidential. He indicated it
really has been the legislature's duty to flesh out the privacy
clause, which they have very rarely done. He stressed that if
the committee wants to give the message in CSHB 190(L&C) that
certain items will not be disclosed, then they should say it.
The privacy clause is a broad and powerful one, but it is not
very well defined, and it seems to contemplate that the
legislature will define it.
MR. LOHR said the general state of the law, with respect to
confidentiality and the insurance statute, is not very good. He
explained that the general rule [in his division] is that
documents are releasable unless he finds they need to be kept
confidential, which implicitly requires a degree of findings on
his part. Furthermore, it is only for as long as he declares
that they need to be confidential. It is a weak overall
confidentiality provision, and he suggests that they not delete
reference to specific requirements for confidentiality on the
side of the viator.
REPRESENTATIVE GREEN agreed that if there is a question, they had
better make sure it is perfectly clear.
REPRESENTATIVE JAMES agreed that it certainly doesn't hurt to put
it in with regard to the people who are involved in the business
and for the investor. She expressed concern about the people who
the insured might make a deal with outside of the group. She
assumes those people can never let anybody know that they have
purchased a life insurance policy from someone else, she said.
Representative James indicated that even if it were carried as an
investment, it could not have the name on it; and if it did, then
they would be violating the privacy issue. She wondered if the
language in CSHB 190(L&C) extends to people who are investors
directly with the insured.
REPRESENTATIVE ROKEBERG indicated people will not be permitted to
sell their own life insurance policies. He agreed with
Representative Croft's analysis of the legislature's
constitutional authority. He pointed out that someone could make
the case that it isn't unquestionably unconstitutional or that it
is within the privy of the constitution, but he believes the
legislature can define what they want done. He commented that
Mr. Usera's point is well taken that they can prohibit the
divulging of a name to the marketing security side, except as it
relates to their confidential investigative requirements.
REPRESENTATIVE KERTTULA agreed and offered the suggestion of
adopting a provision that requires privacy protection.
REPRESENTATIVE CROFT indicated he doesn't want to do it on the
fly, but maybe they could write it up and do it in a day or two.
Number 0587
CHAIRMAN KOTT wondered if it is the will of the committee not
only to deal with the DBSC, to ensure that the privacy protection
is adhered to, but also to address the viatical service provider,
unless they are just after the state side of the equation.
REPRESENTATIVE ROKEBERG said that it is the security side.
CHAIRMAN KOTT pointed out that the provisions of 3 AAC 08.750,
Chapter 08, Securities, for the DCED, state, "except as may be
required in the course of conduct of the division's
responsibility, a viatical settlement provider or issuer may not
divulge to another person the name of either a viator or an
insured of any insurance policy that is the subject of a viatical
settlement interest." He suggested that would probably clearly
identify the right-to-privacy issue, which seems to be the intent
of the committee.
REPRESENTATIVE MURKOWSKI agreed that they can include it on the
security side, but suggested it would be advantageous to also
include it on the Division of Insurance side.
Number 0704
MR. LOHR concurred. He indicated covering it explicitly for
insurance closes the door on any release of information absent a
waiver by the holders of the confidentiality interest; if they
want to waive the interest, they have the right to do that, and
it should not be the government agencies that are divulging that
information.
CHAIRMAN KOTT wondered if it is all right if the language is
included in the body of the bill.
MR. USERA indicated he would have no problem with that.
REPRESENTATIVE MURKOWSKI asked whether it would be necessary or
recommended to include some language in that section that
discusses the confidential nature of the investigation, or if it
is assumed that such investigations within the DCED are
confidential.
MR. USERA explained that in other places in the regulations, the
investigative files are confidential. There is some question as
to whether, once an enforcement action has been taken, there
isn't the cloak of confidentiality. The approach to this would
be to black out any names present in the files.
REPRESENTATIVE MURKOWSKI mentioned tightening it up.
MR. USERA interjected that it wouldn't harm anything.
REPRESENTATIVE KERTTULA recommended that it be tightened up,
because the division's responsibilities could be interpreted
broadly, and once an investigation file goes forward there is a
legal issue as to whether at that point it is a public record.
REPRESENTATIVE CROFT mentioned that it might not address the idea
of waiver. He pointed out that it may be in the individual's
interest to get his or her named published, and individuals
should have that option.
CHAIRMAN KOTT wondered if that would fall within the purview of
the DBSC or the Division of Insurance.
REPRESENTATIVE CROFT said he didn't know.
Number 0913
TERRY ELDER, Director, Division of Banking, Securities &
Corporations, Department of Commerce & Economic Development,
commented that HB 83, passed in the last session, makes
investigative files confidential, subject to administrative or
judicial actions. He noted that in the past it was not clear
whether the investigative files were confidential after an
administrative order was issued. The administrative order itself
is public, although it has always been their position that the
investigation files themselves are confidential.
REPRESENTATIVE KERTTULA wondered if the only way for the public
to get the names is through an administrative or judicial order
after the complaint has been filed.
MR. ELDER said it is very possible that the investigation
wouldn't require the names; therefore, they wouldn't be a part of
the record, and it wouldn't be an issue. If somehow the
information were part of their files and a member of the public
wanted access to that, the person would have to go through some
administrative or judicial procedure.
REPRESENTATIVE KERTTULA wondered if that is after a complaint has
been filed.
MR. ELDER said that is correct. Those investigation files are
confidential all the time.
REPRESENTATIVE KERTTULA indicated concern about what kind of
information the buyer is going to get. The original bill had
language that she liked about the fact that the prospective buyer
had to get information that was sufficient to make an informed
investment decision. The new language says they may adopt
regulations but doesn't have language that is quite as specific.
She added that she would like to see a provision that requires
that, not just allow it to be done by regulation.
Number 1176
REPRESENTATIVE ROKEBERG noted that the approach of the
legislation was basically to go to a regulatory scheme rather
than a statutory scheme.
CHAIRMAN KOTT asked whether the sponsor would object to
reinserting that original language.
REPRESENTATIVE ROKEBERG agreed with both points brought up by
Representative Kerttula, saying he therefore does not object. He
indicated if the committee did not want to pass out the bill but
instead add the new language, he would not object to that either.
CHAIRMAN KOTT emphasized that if they want to affirm something,
they should place it in statute. He announced the committee's
intent to direct staff to work with the DBSC and the Division of
Insurance, and also to reinsert the language that Representative
Kerttula had suggested. [HB 190 was held over.]
ADJOURNMENT
CHAIRMAN KOTT adjourned the House Judiciary Standing Committee
meeting at 3:08 p.m.
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