Legislature(1999 - 2000)
10/21/1999 01:48 PM House L&C
| 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 LABOR AND COMMERCE STANDING COMMITTEE
Anchorage, Alaska
October 21,1999
1:48 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Tom Brice (via teleconference)
Representative Sharon Cissna
MEMBERS ABSENT
Representative Jerry Sanders
Representative Lisa Murkowski
Representative John Harris
COMMITTEE CALENDAR
HOUSE BILL NO. 190
"An Act relating to viatical settlement contracts."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 190
SHORT TITLE: VIATICAL SETTLEMENTS
SPONSOR(S): LABOR & COMMERCE
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
WITNESS REGISTER
DOUG HEAD, President
Viatical Association of America
1200 19th Street Northwest, Suite 300
Washington, D.C. 20036
Telephone: (407) 898-4203
POSITION STATEMENT: Discussed concerns with HB 190.
MIKE McNERNEY, Attorney
Brinkley, McNerney, Morgan, Solomon & Tatum
Chair, Committee on Purchaser Relations
Viatical Association of America
PO Box 522
Ft. Lauderdale, Florida 33302
Telephone: (954) 522-2200
POSITION STATEMENT: Discussed viatical settlements.
JOLENE FULLERTON, Attorney
Kelco
Vice President, VAA
269 West Main
Lexington, KY 40507
Telephone: (606) 225-1015
POSITION STATEMENT: Mentioned her belief that there is a
constitutional property right issue involved.
TERRY ELDER, Director
Division of Banking, Securities & Corporations
Department of Commerce & Economic Development
PO Box 110807
Juneau, Alaska 99801-0807
POSITION STATEMENT: Discussed the division's position.
VINCE USERA, Senior Securities Examiner
Division of Banking, Securities & Corporations
Department of Commerce & Economic Development
PO Box 110807
Juneau, Alaska 99801-0807
POSITION STATEMENT: Discussed the division's position.
BOB LOHR, Director
Division of Insurance
Department of Commerce & Economic Development
PO Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Discussed the division's position.
ACTION NARRATIVE
TAPE 99-64, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 1:48 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro and
Brice. Representative Cissna arrived as the meeting was in
progress. Representatives Sanders, Murkowski and Harris were not
in attendance.
HB 190-VIATICAL SETTLEMENTS
CHAIRMAN ROKEBERG announced that the only order of business before
the committee would be HOUSE BILL NO. 190, "An Act relating to
viatical settlement contracts."
CHAIRMAN ROKEBERG noted that HB 190 was before the committee last
spring. Although there is not a committee substitute(CS), he
acknowledged that the committee has received a letter from Mr.
Elder, Director, Division of Banking, Securities & Corporations.
That letter recommends some amendments to HB 190. Chairman
Rokeberg informed the committee that he had asked, via a letter,
Mr. Elder and Mr. Lohr, Director of the Division of Insurance,
whether the state should take a cross-jurisdictional solution with
regard to whether viatical settlements are securities or an
insurance product. He understood that viewing viatical settlements
as an insurance product would be consistent with the view of the
National Association of Insurance Commissioners (NAIC) Model Act.
The purpose of today's meeting is to receive some input from both
Mr. Elder and Mr. Lohr as well as the public.
CHAIRMAN ROKEBERG expressed concern that the division [Division of
Banking, Securities & Corporations] has undertaken the promulgation
of regulations prior to the enactment of statutes. He was also
concerned that the cease and desist orders on the individual
sellers of these contracts would remain in place. From his
understanding, one lawsuit against the state has been filed by one
provider. Subsequent to that, heavy fines were levied against the
provider by the Division of Banking, Securities & Corporations.
Chairman Rokeberg wanted to receive some public testimony on that
subject as well.
CHAIRMAN ROKEBERG announced his preference to hear public and
technical testimony with regard to the concept of the
cross-jurisdictional scheme. He hoped the committee could come to
some conclusions in order that this legislation could be taken up
early in the session.
Number 062
DOUG HEAD, President, Viatical Association of America (VAA),
testified via teleconference. He informed the committee that the
VAA has taken the general position that it is appropriate to
regulate the viatical settlement industry and the emerging life
settlement industry in a comprehensive manner. He noted that the
committee should have a copy of the proposal which the VAA
supports. That proposal contemplates a comprehensive regulation
under the insurance code. He explained that the thought is that
these are insurance products, and therefore insurance professionals
would be the most informed in dealing with them. Mr. Head noted
that the process has been submitted to the NAIC, which adopted it.
Such a proposal has also been adopted in Florida.
MR. HEAD explained that in the current NAIC product there is only
the stripped down viatical settlement model which looks to the
protection of viators with certain requirements on providers,
brokers, and other participants in the industry. They [the NAIC]
are looking to expand their work and they [the NAIC] have formally
undertaken this in their charges for next year. At the working
group level, [NAIC] is recommending to their life committee that it
review life settlements and purchaser regulations under the
insurance code. At the same time, "we" [VAA] have been working
with the North American Securities Administrators Association
(NASAA) in order to develop an understanding as to how the viatical
industry can move forward in those states which wish to regulate
viatical settlement contract sales as securities. Mr. Head
understood that to be the position of Alaska's [Division of
Banking, Securities & Corporations]. He expressed a willingness to
work with that division in determining whether the state wants to
go that route. He noted that Mike McNerney, Chair, Committee on
Purchaser Relations, VAA, is on-line. Mr. McNerney is prepared to
discuss in detail how the process can move forward and develop a
solution that may be agreeable to all sides.
MR. HEAD reiterated that his preference is to regulate this entire
industry in a comprehensive manner, under the insurance code.
Still, he indicated that enough research has been done so that this
could also be performed in the securities arena.
MR. HEAD, in response to Chairman Rokeberg, explained that the
Viatical Association of America is the largest industry group and
the only group that is actively participating in the legislative
and regulatory arena. Since VAA's founding, it has believed that
the viatical industry will survive as a regulated industry, and
therefore the VAA has advocated for the appropriate regulation in
all states. He pointed out that the committee packet should
contain information regarding what the VAA has advocated for all
the states. However, there is a mix of regulation around the
state, which the VAA would prefer not to have. If operations were
standardized, then many states could operate similarly.
MR. HEAD, in further response to Chairman Rokeberg, acknowledged
that he has seen the draft regulations for the state. He explained
that it is appropriate to review the regulations with regard to
their workability because currently those regulations are not very
workable. He noted that [the VAA] is in the process of preparing
a formal response to those regulations.
Number 134
MIKE McNERNEY, Attorney and Chair of the Committee on Purchaser
Relations, VAA, testified via teleconference. He informed the
committee that about 30 states have adopted a viatical law in some
form. Most of those states have adopted a version of the NAIC
Model Act, which was first proposed six or seven years ago. He
recalled that in 1997/1998 the NAIC adopted a second generation
NAIC model of viatical law. Last year, the NAIC also adopted the
second generation of a set of model viatical regulations, which
were written to be compatible with the proposed model act. Mr.
McNerney informed the committee that four states have started to
address purchaser issues by amending the security statutes to
include a reference to a viatical transaction. The four states are
North Dakota, South Dakota, Iowa, and Maine. Maine has adopted
regulations which include some of the same concepts proposed by the
department [Division of Insurance]. However, the regulations are
significantly different. He explained that the concepts are a
waiver of registration for the viatical policies and a requirement
of disclosure to the purchaser and an effort to have a recision
period, which would be dramatically different from the proposed
regulation before the committee.
MR. McNERNEY pointed out that Florida has been a leader in viatical
legislation. Last year Florida, with the help of the legislature
and the industry, adopted some amendments to its viatical law.
Those amendments could end purchaser-protection language,
disclosure requirements, and licensing requirements. Many states
have addressed the securities question. However, the majority have
used a mixed-bag approach. He explained that most states, which
have made a pronouncement, will say that some types of viatical
transactions may be securities under that state's definition of a
security. Such a statement leaves open the fact that one is
reviewing these on a case-by-case basis based on the transaction's
structure. Most states acknowledge that if there is one viator who
sells his policy to one purchaser, the one-to-one transaction does
not fit under the state's definition of a security no matter how
conservative an interpretation of the securities laws. However,
there could be a transaction which is structured such that a group
of viatical transactions/policies are placed into a pool and
someone sells an interest in the pool. There are many different
types of transactions. Furthermore, there are three or four
different definitions of a viatical transaction. The consensus of
a national definition, although it is not uniformly adopted, deals
with someone who is terminally or chronically ill and is selling
his/her life insurance policy. That terminally or chronically ill
person usually has a two year or less life expectancy.
MR. McNERNEY pointed out that there are plenty in the industry who
are terminally ill with a life expectancy of over two years.
Furthermore, there is a developing industry for those who want to
sell their life insurance policy for which he/she no longer needs.
He stressed that these people are not terminally ill. Such a
scenario is identified as a life settlement. There are various
situations in which a person may want to sell a life insurance
policy if there was an appropriate buyer and price.
MR. McNERNEY echoed Mr. Head's comments that the VAA has said for
several years that regulation of the viatical industry is
appropriate. Furthermore, the VAA believes that one department of
state government should regulate the viatical industry. Of the 30
states that have adopted viatical laws, those states have placed
jurisdiction for those laws in their insurance departments. With
the exception of Florida, those laws don't deal with the purchaser
side of the transaction. However, those laws do license viatical
settlement providers, brokers and in some cases, sales agents.
Those laws do call for (indisc. - coughing) requirements on
closings and there are rules to protect the viator. Those laws
also have recision language for viators.
MR. McNERNEY acknowledged that there can be a legitimate
intellectual discussion regarding the view that some types of
viatical transactions look like a security. He compared such
discussion with that surrounding long-term annuities, which in some
states are regulated as an insurance product and in others a
security product and still others regulate long-term annuities as
both. He reiterated that having one state agency to regulate
viatical settlements would be the most appropriate. Such a
structure would allow rules that protect both sides of the
transaction. Furthermore, those rules could be consistent. He
stressed that consistency is a big issue. For example, the NAIC
has been extremely concerned about the disclosure of certain
information about a viator who is selling his/her policy. That
concern has led the NAIC to discuss with the industry how to avoid
the disclosure of the name of the insured. Mr. McNerney said that
the VAA has said that such cannot be done because some knowledge of
that information has to be provided to the purchaser.
MR. McNERNEY informed the committee that when Maine adopted its
security regulation and disclosure statement, Maine mandated that
the companies disclose the name, address, and phone number of the
insured to the purchaser. Although the state government can decide
such, the securities department cannot mandate that in order to
comply with exemption language while the insurance department says
that such information of the viator cannot be disclosed.
Similarly, most state laws have recision periods for viators. He
pointed out that typically, viators receive the majority of the
funds from any transaction. If the viator changes his/her mind,
he/she can change his/her mind during a certain period of time, a
recision period. If there is a recision period in place for the
purchaser also, then the purchaser could rescind and then the
person/entity with the money would be the viator not the viatical
settlement company. The viatical settlement company has a
percentage of profit on the deal. Therefore, if the purchaser
rescinds and the recision is tied to the closing of the policy, how
is the money taken from the viator. Moreover, many insurance
companies will only change the beneficiaries or designation of
owner on a periodic basis. When a policy is closed, the name of
the owner and the beneficiaries of the policy changes. If the
purchaser wants to rescind within 15 days - which is the latest
proposal here - then the insurance company may not change the name
back. How would that be handled?
MR. McNERNEY specified that the aforementioned are examples which
point to the need for comprehensive legislation that addresses both
sides of the transaction. From the industry's point of view, the
main issue is to have a set of rules that are understandable and
can be lived by. Therefore, the VAA has added proposed language to
the NAIC Model Act which inserts purchaser protection via
disclosures and licensures, and a section that regulates the life
settlement portion of this business. Mr. McNerney recognized that
some states may decide to regulate some parts of this as a
security. Therefore, the VAA has worked with outside counsel and
drafted a proposed security regulation, which is conceptually
similar to HB 190. As pointed out by Chairman Rokeberg, the
department [the Division of Banking, Securities & Corporations] has
proposed regulations which are similar to HB 190.
MR. McNERNEY offered to work with the committee, to the extent that
the committee is interested in working towards a comprehensive
approach to the viatical issue. He also offered to work with the
Division of Banking, Securities & Corporations in order to craft a
proposed regulation, if only the security/purchaser side is to be
regulated as a security. [The VAA] believes that the regulation
approach is better than the legislative approach, as proposed in HB
190. He commented that the department would be suited to modify
the regulation as the market changes and/or new areas must be
addressed. Mr. McNerney suggested that some time be allowed so
that they could work with the Division of Banking, Securities &
Corporations in order to craft legislation that the industry and
the department can live with. Then the committee can determine
whether to move forward with enacting authority for that
legislation or a comprehensive bill.
MR. McNERNEY informed the committee that he would be forwarding Mr.
Elder a copy of the [VAA's] proposed model regulation, which
includes the same types of concepts as Mr. Elder's regulations and
HB 190. The VAA is also prepared to respond to the regulations in
more detail by the October 29 deadline. Therefore, he reiterated
his offer to work with the department to develop a product
supported by the industry and the department.
Number 380
REPRESENTATIVE HALCRO recalled that Mr. McNerney mentioned that
Florida has taken the lead in developing regulations - legislation
that has managed the viatical settlement industry. Representative
Halcro inquired as to the level of consumer protection before those
regulations in Florida.
MR. McNERNEY answered that before the regulations there was not any
consumer protection specific to the viatical industry other than
the viator protections in Florida's law. He explained that before
Florida developed regulations, there were the standard laws with
regard to unfair and deceptive trade practices, fraud, et cetera.
MR. McNERNEY informed the committee that about two years ago the
VAA adopted disclosure requirements for its members. In Florida,
the VAA approached Florida's legislature and said it would like to
work with the legislature to achieve more regulation in the
viatical industry. The VAA placed its proposal on the table, which
was wrapped up with the legislature's purchaser protections to form
a bill. That was a successful process, which increased the level
of regulation. Mr. McNerney expressed his pride in the
accomplishment in Florida. He discussed the need to have a
reasonable regulatory plan that will, hopefully, be based on some
national models in order that there are compatible regulations. He
explained that a typical viatical transaction is a multi-state
transaction. For example, a viator in Colorado may be represented
by a viatical broker in Kansas. That viator may sign a contract
with a company in Georgia. Furthermore, more than one person could
purchase a piece of the policy and those people could live in
various states. The deal attempts to comply with everyone's rules.
Therefore, the VAA has spent much time working with the national
organization.
MR. McNERNEY noted that NASAA has established a committee to review
a model securities regulation approach. He hoped that committee
would have a recommendation by the spring. The NAIC working group
is working on purchaser-protection language which would fit into
the NAIC Model Act. The VAA is working with the NAIC. He believed
both the VAA and the NAIC are supposed to meet with the National
Conference of Insurance Legislators (NCOIL), which is interested in
working on a model act that it could suggest to its members.
REPRESENTATIVE HALCRO asked whether those states with legislation
regulating the viatical industry have included protections to
maintain the confidentiality of the name of the viator. Although
he agreed that it should be verifiable that the viator has a
terminal illness, he indicated the need to keep the viator's name
confidential.
MR. McNERNEY pointed out that the NAIC model has provisions which
address viator confidentiality. Basically, the NAIC has left this
up to the viator. The companies cannot disclose such information
without the viator's specific approval. Still, this is a
problematic issue. For example, Alaska's proposed regulation
attempts to proceed down the same path as Maine, in terms of
disclosure. Mr. McNerney said that most of the disclosure package
is good, although he had a few concerns. He pointed out that there
is a provision regarding the policy number and the name of the
insurance company, et cetera. Although that seems reasonable in so
far as the investor can verify his purchase, Mr. McNerney explained
that from the name of the policy one can obtain the name of the
insured. He noted that the VAA is working with the NAIC in order
to develop a balance between viator protection and purchaser
protection. He informed the committee that some states such as
California have determined that the only person who can talk with
a viator is a licensed viatical company, which basically requires
the viatical company to be part of the deal for the life of the
policy. If a viatical company is forced to do such, that looks
more like a security because the viatical company is managing the
asset. He indicated that Mr. Elder would agree.
MR. McNERNEY mentioned that he had not seen the letter to the
commissioners regarding concurrent jurisdiction. However, he
offered to work on that. Although it is a bit difficult, there are
some examples with annuities. He reiterated that the VAA is
interested in developing a final product that everyone can live
with, and is fair to the consumer. He pointed out that there are
two sets of consumers one of which is the property owner of the
life insurance policy and the other is the purchaser; both
consumers need protection.
REPRESENTATIVE HALCRO asked why an investor in a viatical policy
would need the name and address of the viator.
MR. McNERNEY said that there are two basic areas of interest.
First, there needs to be some manner in which to confirm the
investment. Second, when the viator passes someone has to file the
death claim with the insurance company.
AN UNIDENTIFIED SPEAKER [MR. HEAD] informed the committee that
there are two national problems connected with the industry which
have involved individuals who sought to raise money across the
nation in order to purchase viatical settlements. Those
individuals told the investors that they were purchasing viatical
settlements, but for issues of privacy could not disclose what they
were purchasing. In the end, it was a Ponzi scheme.
TAPE 99-64, SIDE B
MR. McNERNEY said he was sure that Mr. Elder had concerns regarding
how the purchaser knows what he/she is getting. He shared that
concern.
REPRESENTATIVE HALCRO asked if any life insurance companies
currently write in their policy that the policy cannot be sold to
viatical companies.
AN UNIDENTIFIED SPEAKER replied no.
Number 016
JOLENE FULLERTON, Attorney, Kelco; Vice President, VAA, expressed
her belief that there is a constitutional property right issue
involved. She requested that she be allowed to reserve her
comments until the conclusion of everyone's testimony.
MR. McNERNEY asked if Chairman Rokeberg had any other questions
before hearing from the departments.
CHAIRMAN ROKEBERG replied yes. He inquired as to the mention of
the NCOIL hearing.
MR. HEAD informed the committee that NCOIL is meeting in Orlando,
Florida on November 19, 1999. The Life Committee of NCOIL will
consider a document which the VAA has forwarded them. One of the
concerns was that the NAIC process produced a document with
legislative language which needed to be fleshed out with rules. He
explained that NCOIL has been concerned with the possibility of the
language being over-interpreted during the rules-making process.
Therefore, NCOIL wanted VAA to provide a model act, which was just
sent this evening. Mr. Head noted that many states have rigid
language with regard to the rules-making process. For instance,
Arizona practically has no possibility for rules-making and thus
everything has to be included in the act. Mr. Head believed that
the proposal to NCOIL attempts to meet that need.
CHAIRMAN ROKEBERG understood then that it [the language] is more
specific for statutory codification.
MR. HEAD agreed with Chairman Rokeberg's understanding. He added
that the proposal also attempts to address the issues mentioned by
Mr. McNerney.
MR. McNERNEY pointed out that NCOIL has a committee to look at
this. Therefore, there will be three national organizations
reviewing model legislation or revisions to model legislation in
order to address these issues. He explained that proposals are
being communicated amongst the organizations with the hope that it
would result in some uniformity in the approach.
CHAIRMAN ROKEBERG asked if the minutes from the February 26, 1999,
NCOIL meeting were subsequently adopted.
MR. HEAD answered that those minutes were adopted at the meeting
held in Cincinnati. The minutes from the meeting held in
Cincinnati are now up for consideration. He offered to send the
committee a copy. Mr. Head informed the committee that basically,
NCOIL, because they are insurance legislators, has generally taken
the position of favoring comprehensive regulation in the insurance
arena. The chairman of NCOIL strongly advocated the aforementioned
position. The chairman of NCOIL, who is from Florida, was the
sponsor of the Florida legislation.
Number 080
TERRY ELDER, Director, Division of Banking, Securities &
Corporations, Department of Commerce & Economic Development,
testified via teleconference from Juneau. He said that he would
not address the document entitled, "Needed Amendments to HB 190"
unless there are questions. With regards to the big picture, Mr.
Elder had not heard anything from the VAA that would be a problem.
He understood the VAA's position, which favors comprehensive
coverage for viaticals under the Division of Insurance. Although
Mr. Elder did not agree with the VAA's position, he was encouraged
that the VAA is willing to work with those states considering
viaticals as securities. He confirmed that he and Mr. McNerney had
a conversation. Mr. Elder looked forward to receiving the VAA's
proposals and having substantive discussions with regard to the
proposed regulations. He informed the committee that he had
expressed a willingness to extend the comment period in order to
extend the deadline. With regard to the chairman's concern
regarding the division's adoption of regulations, he pointed out
that the division has considered most viatical settlement contract
sales to fit under the securities definition as an investment
contract. He explained that, as a regulator, a general approach to
a certain class of issuers is required to be done via regulation.
Therefore, he identified the failing, if any, as the waiting to go
into the regulation-adopting process.
MR. ELDER commented that Mr. McNerney mentioned in his comments the
use of mostly regulations with something more general and simpler
in the statutes in order to provide clarity with respect to
jurisdiction. He indicated that to be appropriate, as such an
approach is more flexible. Therefore, he felt Mr. McNerney's
suggestion had some merit and the division would consider it. Mr.
Elder expressed the division's willingness to work towards a common
ground with the VAA. With regard to the viator's privacy and
investor disclosure, both issues need to be addressed. He agreed
with Mr. McNerney that including the viatical settlement provider
throughout the process would make it more of a security under law.
If the viatical settlement provider is involved throughout the
entire process, there may be a time that the viator lives longer
than anticipated which would necessitate the need to continue the
enforcement of that policy. Therefore, there are legitimate
concerns for both viators and investors. In conclusion, Mr. Elder
deferred comments regarding the relationship between the viators
and the viatical settlement providers and the protection of viators
to the Division of Insurance. However, he suggested that if this
is split between the divisions, [the rules] should be kept in two
separate bills. "Whether HB 190 goes forward sort of like it is
now with a lot of the details in it or if we, as a result of our
discussions with the VAA, come to you and suggest simplifying it to
more narrowly focus it to enabling legislation to protect our
jurisdiction, that will have a zero fiscal note from our view
point." He explained that since viatical settlements have always
been considered investment contracts, the Division of Banking,
Securities & Corporations is not performing anything new, and
therefore would not propose any additional costs for that.
However, he suspected the adoption of the NAIC model under the
Division of Insurance, who would license a number of different
participants on the viator side, would have a cost. Therefore, he
preferred the securities bill to not be tied to another bill that
incurs a fiscal note.
CHAIRMAN ROKEBERG appreciated Mr. Elder's concern regarding the
fiscal note. However, he indicated his preference to have only one
bill. He further indicated that the Division of Insurance would
have to pursue placing this in its budget in order to minimize the
costs and avoid a fiscal note that would place this in jeopardy.
Chairman Rokeberg was pleased to hear that Mr. Elder is willing to
work with the VAA. Chairman Rokeberg requested that either Mr.
Elder or Mr. Usera provide the committee with a brief description
of the regulations in regards to whether the regulations go beyond
the scope of the bill and whether the regulations are consistent
with the bill.
Number 218
VINCE USERA, Senior Securities Examiner, Division of Banking,
Securities & Corporations, Department of Commerce & Economic
Development, testified via teleconference from Juneau. He informed
the committee that he drafted the regulations by taking them
directly from HB 190. Therefore, he did not believe that any of
the regulations go beyond the scope of HB 190.
CHAIRMAN ROKEBERG inquired as to the Division of Banking,
Securities, & Corporations' relationship with Future First
Securities and the nature and timing of the lawsuit.
MR. USERA explained that after a long process, the division has
settled with Future First Securities, although there is no document
to evidence that. In further response to Chairman Rokeberg, he
specified that a total of about $15,000 has changed hands. Of that
$15,000, $5,000 will go to the Department of Law and $10,000 to the
Division of Banking, Securities, & Corporations for expenses.
Future First Securities is dropping the lawsuit and have agreed to
abide by any regulations as well as the division's jurisdiction in
this matter. He noted that the order would be withdrawn.
CHAIRMAN ROKEBERG inquired as to the impact that action would have
on the cease and desist orders issued by the division to sellers.
MR. USERA answered that there would not be any impact. He
commented that the division has not issued any cease and desist
orders. With regard to the voluntary cease and desist orders, Mr.
Usera said that he hoped people would abide by the spirit of if not
the letter of the regulations. Future First has agreed to do so.
Number 233
MR. McNERNEY asked which regulation was the division requesting
that people abide the spirit of.
MR. USERA specified that he was referring to the proposed
regulations.
CHAIRMAN ROKEBERG indicated frustration with this situation in
which there is no statutory foundation or regulatory foundation
other than an interpretation of what a security is. He expressed
further frustration because the committee is working on legislation
to give authority while the division issues regulations before the
legislation. Although Chairman Rokeberg was pleased that the issue
with Future First was settled, he believed the entire situation had
gotten out of hand.
AN UNIDENTIFIED SPEAKER pointed out that the division is required
to adopt regulations when it handles certain participants in the
securities industry in a certain way. He eluded to the possibility
of disputes and the need for regulations.
CHAIRMAN ROKEBERG indicated his disagreement. He asked if the
division is working on regulations for after-market securities
exchanges in Alaska.
MR. USERA replied no and noted that it is no different than the
current regulations. The division does not require registration of
exchanges. Furthermore, most of the firms that trade
electronically and do business with Alaskans are registered. With
regard to the adoption of regulations, this is not unique. He
pointed out that the division adopted "D" regulations and "Score"
regulations some years ago under the same statutory authority as
proposed to adopt viatical regulations. As Mr. McNerney mentioned,
that [adopting regulations within the division] may be a more
appropriate and flexible path for the state to regulate these
securities.
Number 277
REPRESENTATIVE HALCRO quoted the following from a September 16
memorandum from Mr. Usera: "The division finds that there is need
for regulation quickly." He noted that there is no fiscal note.
Representative Halcro assumed that if the department implements
regulations, that would result in minimal costs versus the
legislature passing legislation to do the same thing.
MR. ELDER explained that the division would have to adopt some
regulations anyway in order to flesh out any statutory change. If
the entire route through the regulation process is followed, then
there would not be more or less cost than going through the
legislative process. He reiterated that the division would have to
adopt regulations either way.
REPRESENTATIVE HALCRO inquired as to why the division found the
need for regulation.
MR. ELDER pointed out that the proposal to adopt regulations was
done before there was a settlement [in the Future First lawsuit].
Therefore, the regulations had nothing to do with the settlement or
even Future First. He explained that the regulations recognized
that there have been some [viatical settlement] sales in Alaska and
there have been indications that other companies want to do
business here and thus are interested in the rules.
Number 324
BOB LOHR, Director, Division of Insurance, Department of Commerce
& Economic Development, recalled the opening remarks regarding the
local jurisdictional skirmish and hoped those remarks were
humorous. He did not believe there is such a skirmish within the
department, which fully supports the Division of Banking,
Securities & Corporations in its "stepping up to the plate" to
regulate viaticals. He noted the difference in the view of he and
his predecessor. Therefore, he stated the following on the record:
"I think it is fair to argue that the sales transaction between the
viatical settlement provider and a viator is not classically the
business of insurance." He understood that to be the finding of
the panel in the District of Columbia Court of Appeals. He also
believed that panel found such a transaction to not be a securities
transaction. Mr. Lohr could not imagine a worse possible outcome:
no regulation at all. He understood the effect of the panel's
decision, with respect to insurance, to be "that the preemption of
federal law found in the McCarran-Ferguson Act, that federal
legislation, is not triggered by the particular viatical
transaction that they reviewed." He explained that if a state
stepped into this area and the federal government found authority
or the need to step in, that state could be preempted by that
federal agency's involvement. However, he pointed out that 30
states have "stepped up to the plate," which he felt Alaska should
do the same this session.
MR. LOHR announced that the Division of Insurance will take on
responsibility in this area if asked to do so. He noted that the
division would also give the most economical fiscal note that it
could to implement such a responsibility. Although the division
has not done a detailed review of the cost, he had the impression
that it would necessitate less than a half-time person in licensing
as well as some modest costs for outreach materials. In closing,
Mr. Lohr offered to answer any questions.
Number 400
CHAIRMAN ROKEBERG turned to the distinction between the life
settlement issue and the viator, "which has traditionally defined
in making a distinction of the two years of life expectancy." He
inquired as to the result of making a definition that would include
both of those.
MR. McNERNEY said that [the VAA] does not think it is a good
approach to lump it all together because the circumstances are
different. He pointed to the difference between a terminally ill
person selling his/her policy versus a person who is not in any
particular duress due to his/her health selling his/her life
insurance policy. Mr. McNerney felt that defining these
separately, but in the same piece of legislation affords the
flexibility to tailor what should happen under either circumstance.
He explained that the VAA proposal provides for one license for
people that are in this industry in various capacities. Therefore,
if one is licensed to do viaticals then he/she is also licensed to
do life settlements. However, there are some differences in terms
of the consumers.
CHAIRMAN ROKEBERG commented that he could see some protection for
the viator as opposed to the life settlement individual. However,
he was not sure with regard to the buying public.
MR. McNERNEY clarified that the purchaser-protection provisions are
identical in the two sections.
CHAIRMAN ROKEBERG asked then if categorizing it as security, it
would be similar.
MR. McNERNEY replied yes. Mr. McNerney said that the VAA is not
opposed to suggestions with regard to how to consolidate this in a
reasonable way. He explained that the information being sought by
a purchaser is similar whether with a short-term or long-term
situation. Therefore, it could possibly be consolidated in some
ways. Mr. McNerney reiterated that the VAA has forwarded its
proposal to the NAIC and NCOIL. In further response to Chairman
Rokeberg, he explained that the VAA has had the NAIC model before
it. He clarified that they took the NAIC model, the statute, and
inserted purchaser-protection language as well as life settlement
language. The committee has the revised form that is red-lined so
that the amendments are apparent. Now NCOIL has requested a
similar, comprehensive bill. However, NCOIL wanted the statute
approach adopted by the NAIC to be combined with the regulations.
That has been done as well as including language regarding
purchaser protection. He pointed out that NCOIL has a different
approach from that of the NAIC with regards to whether the
regulations are separated or included in the legislation. The VAA
wants to stay out of that issue.
CHAIRMAN ROKEBERG inquired as to the VAA's relationship with NASAA.
MR. McNERNEY said that NASAA is roughly equivalent to the NAIC,
although the organizations function a bit differently. Mr.
McNerney emphasized that the VAA is working with both NASAA and the
NAIC. He noted that NASAA's committee is not looking for
comprehensive legislation, but rather for a model security
regulation. The approach taken by NASAA is that it will obtain
jurisdiction, but when it is obtained they want to be prepared to
regulate it. He provided the following example. Most securities
are required to be registered with the appropriate state agency.
If a person is selling an individual policy, each policy cannot be
effectively registered as that policy is sold. Therefore, there
has to be an exemption from registration with some reasonable
buyer-protection provisions such as disclosure. Mr. McNerney
pointed out that is the approach taken by your division [the
Division of Banking, Securities & Corporations]. He mentioned that
the VAA does not agree with some of the details. He also pointed
out that due to the inability to effectively register each life
insurance policy, the fiscal note would become a book. Therefore,
NASAA is reviewing what the requirements would be if exemption for
registration is allowed.
Number 555
CHAIRMAN ROKEBERG noted that review of this area as an insurance
model, leaves state regulation. He noted the growing impact and
importance of e-commerce in this area and the lack of regulation
due to the diffused state regulation. He believed that this area
almost begs for federal regulation. He recalled that Mr. McNerney
spoke to that in earlier testimony regarding the federal
government's statutory authority to step in.
MR. McNERNEY commented that there is much "play" between the
federal government and Congress regarding what it wants to regulate
and what will be left to the states to regulate. Again, that is a
conflict that the VAA wants to stay out of. He understood that the
Securities Exchange Commission (SEC) has basically withdrawn from
this area since the life partners decision, and therefore the
states have their own jurisdictional rights in this area. So, the
VAA's problem is to have a national (indisc. - coughing), which has
led the VAA to work with these national organizations in order to
obtain some consensus on a model law. He acknowledged that
approach not to be the easiest approach because at the same time
individual states may be adopting their own approach. Mr. McNerney
commented that the VAA would appreciate one law that affected
everything.
TAPE 99-65, SIDE A
MR. LOHR noted that federal preemption of insurance regulation by
the state is a serious potential problem with the pending financial
modernization legislation. In conferences, there have been
problems that the administration and the conferees do not agree on,
but these are not problems related to insurance preemption. He
suggested that in partial response to that, the NAIC and individual
states are trying to review ways to simplify the intrastate
elements of what they do.
MR. McNERNEY agreed that the NAIC and the individual states are
trying to review ways to simplify the intrastate elements of what
they do, which is very helpful.
MR. LOHR informed the committee that regardless of the outcome of
S 900 and HR 10, he was committed to pursuing ways to simplify the
licensing procedures, the use of electronic formatting, et cetera.
This simplification could reduce the burden and idiosyncracies at
the state level, to the extent that can be performed
administratively. He indicated that the Division of Insurance may
come to the legislature with recommendations for legislative
adjustments in order to conform to a national pattern. He pointed
out that not only would this simplify things, but it would also
increase the competitiveness of life insurance providers.
Number 015
MR. ELDER pointed out that the statute as well as the division
(Division of Banking, Securities & Corporations) itself try to have
uniform securities regulations to the extent possible. The
division understands that due to some states moving faster than
others, there can be some differences. In that vein, Mr. Elder was
happy that the division is working with the VAA and NASAA.
CHAIRMAN ROKEBERG noted the peculiar fiscal position the
legislature finds itself in. He inquired as to the number of
viatical settlement or life settlement providers that could be
registered to generate revenue. What kind of fees are charged?
MR. HEAD said that there are 20 companies which could register,
under favorable circumstances, as providers. He estimated double
that amount could register as brokers along with (indisc. -
fading). He could not speak to the volume that could be expected
in Alaska.
MR. McNERNEY agreed with those numbers, however he did not believe
that Alaska would receive them all.
MR. LOHR commented that he believed the NAIC model legislation does
provide for fees by registrants in this area. Therefore, it would
be a potential revenue source, which could easily offset and
possibly exceed the fiscal note.
CHAIRMAN ROKEBERG requested that Mr. McNerney provide the committee
with the fee schedules for various states in order to be consistent
with those.
MR. ELDER echoed Mr. Usera's earlier comments that the regulations
were based on HB 190, which is preferable to nothing. Without any
regulation, the only thing left is full registration. He specified
that he was not proposing full registration, but rather an
exemption from full registration.
CHAIRMAN ROKEBERG announced that the committee would like for the
Division of Banking, Securities & Corporations to work with the VAA
in developing and modifying the regulations to agreement. This
would allow formal promulgation of the regulations as soon as
possible. He mentioned the need for the regulations to be
consistent with HB 190, even when amended. He requested that Mr.
Lohr, Mr. Elder and those from the VAA work together to develop a
modification to HB 190, which would direct the Division of
Insurance to fundamentally adopt the NAIC statute, predominantly in
the form of regulation. He further requested that those same folks
work on setting up this type of cross-jurisdictional activity in
Alaska. Chairman Rokeberg said that he wanted to maintain the area
that has been demarcated Banking & Securities in the existing HB
190 while adding the requirements for regulation of providers,
viators, and settlement owners to the Division of Insurance.
Number 100
MR. McNERNEY asked if Chairman Rokeberg was suggesting placing the
entire NAIC bill into HB 190 or was he discussing giving the
departments authority to enact regulations.
CHAIRMAN ROKEBERG clarified that he wanted to add the authority of
the Division of Insurance in HB 190. He only wanted one bill. He
requested recommendations from all parties with regard to what
policy issues need to be decided and addressed by the legislature.
Chairman Rokeberg expressed his desire to have the regulations
promulgated before the end of the upcoming session.
MR. LOHR noted that the division is very busy. He felt it feasible
to utilize HB 190 as the guide for the regulations. However, he
requested that a mandate to adopt regulations be included versus
general authority.
CHAIRMAN ROKEBERG agreed. He expressed the desire to move HB 190
along.
MR. LOHR indicated his understanding of Chairman Rokeberg's
directive. With regard to the fiscal note, he believed he could
assure that the fiscal note would be self-supporting. He further
indicated that they would not be seeking any unrestricted general
funds. Furthermore, he believed that the fee structure they would
propose would adequately cover any cost of implementation and
ongoing operation of the program.
CHAIRMAN ROKEBERG explained that is why he wanted the model act to
be used and minimized in order to keep business coming into the
state. He expressed the need to have a minimal amount of hurdles.
Chairman Rokeberg stated that Mr. Elder could use the $10,000
settlement to create information regarding how people can qualify
for their license.
Number 137
MR. ELDER said that Chairman Rokeberg's idea was good, however the
settlement goes to the general fund due to the division's current
budget.
MR. ELDER, in response to Chairman Rokeberg, said that he did not
have any problems with what the chair had outlined. He echoed Mr.
Lohr's comments that there are no jurisdictional problems between
the Division of Insurance and the Division of Banking, Securities
& Corporations.
CHAIRMAN ROKEBERG informed everyone that he would be discussing
this with the commissioner.
MR. ELDER reiterated his interest in working with the VAA as
quickly as possible in order to get regulations adopted as quickly
as possible as well as noting the modifications necessary to HB
190.
CHAIRMAN ROKEBERG stated that he wanted to be informed immediately
if folks are not cooperating.
MR. HEAD thanked the chair and noted that he looked forward to
working with both divisions to develop regulations.
MR. LOHR commented that it is an excellent approach. He requested
that the national viatical association, which testified at the
April hearing, also be in the loop of this process.
MR. HEAD pointed out that the current policy position for the
national association is to rely on [the VAA].
CHAIRMAN ROKEBERG indicated the need to verify that independently.
Number 190
REPRESENTATIVE BRICE commented that this is an issue that must be
dealt with and the sooner the better.
CHAIRMAN ROKEBERG said that he looked forward to having another
draft of HB 190 before the upcoming session. He noted that he
would appreciate, as soon as possible, any recommendations with
regard to the policy issues that the committee has to take up.
ADJOURNMENT
There being no further business before the committee, the House
Labor & Commerce Standing Committee meeting was adjourned at 3:40
p.m.
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