Legislature(1999 - 2000)
01/19/2000 03:25 PM House L&C
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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
January 19, 2000
3:25 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Lisa Murkowski
Representative Tom Brice
Representative Sharon Cissna
MEMBERS ABSENT
Representative John Harris
Representative Jerry Sanders
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
<BILL POSTPONED>
1/19/00 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
MICHAEL MCNERNEY, Attorney
Chair, Committee on Purchaser Relations
Viatical Association of America
Brinkely, McNerney, Morgan, Solomon & Tatum
P.O. Box 522
Ft. Lauderdale, Florida 33302
POSITION STATEMENT: Testified on HB 190, Version I.
VINCE USERA, Senior Securities Examiner
Division of Banking, Securities & Corporations
Department of Community and Economic Development
P.O. Box 110807
Juneau, Alaska 99801-0807
POSITION STATEMENT: Testified on HB 190, Version I.
BOB LOHR, Director
Division of Insurance
Department of Community and Economic Development
P.O. Box 110805
Juneau, Alaska 99801-0805
POSITION STATEMENT: Testified on HB 190, Version I.
KATY CAMPBELL, Actuary L/H
Division of Insurance
Department of Community and Economic Development
P.O. Box 110805
Juneau, Alaska 99801-0805
POSITION STATEMENT: Testified on HB 190, Version I.
ACTION NARRATIVE
TAPE 00-01, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:25 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Murkowski, Brice and Cissna. Representatives Sanders and Harris
were excused from the meeting.
HB 190-VIATICAL SETTLEMENTS
Number 0130
CHAIRMAN ROKEBERG announced the first order of business would be
HOUSE BILL NO. 190, "An Act relating to viatical settlement
contracts."
CHAIRMAN ROKEBERG explained that he had asked the Division of
Banking, Securities and Corporations (DBSC) and the Division of
Insurance to work with the Viatical Association of America to
come up with draft legislation that meets everyone's concerns as
best as possible. It was his intention to provide the Division
of Insurance with the primary overview and regulation of the
entire industry, with the exception of the sales of viatical or
life settlement contracts to the consumer. This is because of
the DBSC's interpretation of those instruments as securities. He
indicated this is somewhat of a compromise, but he feels it meets
the requirements and demands of this area of commerce to be
regulated by the State of Alaska in order to protect the citizens
of the state.
Number 0313
REPRESENTATIVE HALCRO made a motion for the adoption of the
proposed committee substitute for HB 190 [Version I, 1-LS0576,
Bannister/Ford, 1/18/00]. There being no objection, Version I
was adopted as a work draft.
REPRESENTATIVE HALCRO made a motion to adopt Amendment 1 [1-
LS0576\I.1, Ford, 1/18/00], as follows:
Page 1, line 1, following "transactions":
Insert "and life settlement interest"
Page 5, line 9, following "interest":
Insert "or life settlement interest"
Page 5, following line 28:
Insert a new paragraph to read:
"(37) "life settlement interest" means
the entire interest or any fractional interest in a
life insurance policy that is the subject of a life
settlement contract; "life settlement interest" does
not include the initial purchase from the owner by a
life settlement provider;"
REPRESENTATIVE BRICE objected.
CHAIRMAN ROKEBERG explained that the amendment adds life
settlement interests, which are distinguished from viatical
settlements.
REPRESENTATIVE BRICE wondered what that meant exactly.
CHAIRMAN ROKEBERG clarified that viatical settlements deal with
individuals who are involved "with a catastrophic or life-
threatening chronic illness or condition." In the second
amendment to be offered, this would be deleted, allowing a person
to sell a discounted life insurance policy without being
critically ill. He clarified that a person has to be ill in
order to have a viatical settlement, but not in order to have a
life settlement.
Number 0494
REPRESENTATIVE BRICE asked if this allows a person to sell his or
her life insurance policy while still healthy.
CHAIRMAN ROKEBERG said that is correct.
MICHAEL MCNERNEY, Attorney, Viatical Association of America;
Chair, Committee on Purchaser Relations, testified via
teleconference from New Orleans, Louisiana.
Number 0600
CHAIRMAN ROKEBERG explained to Mr. McNerney that the committee
was adopting some amendments to Version I. He indicated
personnel from the Department of Community and Economic
Development would then explain Version I and, finally, Mr.
McNerney could provide comments. He asked if everyone
understands what Amendment 1 does.
REPRESENTATIVE MURKOWSKI asked if there is a difference between a
life settlement interest and the accelerated benefits provision
under the terms of a life insurance contract.
CHAIRMAN ROKEBERG deferred to Mr. McNerney.
Number 0698
MR. MCNERNEY explained that an accelerated death benefit, in most
cases under a life insurance contract, is a short-term situation
where a person usually has a 12-month life expectancy or less.
It is also usually at a predetermined, discounted amount of the
face value of the policy. A life settlement is the purchase of a
policy that does not meet the definition of a viatical
settlement, which is defined in most states as a person with a
catastrophic or life-threatening illness. He said the term "life
settlement" is meant to define transactions that do not fall into
a viatical settlement definition. He mentioned that life
settlements are a growing phase of this business.
REPRESENTATIVE MURKOWSKI indicated she was referring to Version
I, page 4, line 3, which she interpreted to say that a viatical
settlement contract does not include the exercise of an
accelerated provision by the viator or insured.
Number 0804
MR. MCNERNEY said that is right. He referred to page 3,
paragraph (3), subparagraph (B), and indicated it is the type of
thing that is excluded.
CHAIRMAN ROKEBERG voiced his preference to hear brief testimony
and then return to the issue.
VINCE USERA, Senior Securities Examiner, Division of Banking,
Securities & Corporations (DBSC), Department of Community and
Economic Development (DCED), came forward to testify on Version I
of HB 190. He said:
The chief distinction between the two is who's buying
it. Who's paying the money? A life settlement
contract is sold to any individual or an institution.
And accelerated benefits, the insurance company that
issued the policy is paying the individual ... and it's
limited to those two people having that contractual
relationship.
MR. MCNERNEY said that is also true.
CHAIRMAN ROKEBERG said he thinks there is a clear distinction in
the industry regarding that.
MR. USERA indicated he does not want to limit that in any way.
Number 0904
REPRESENTATIVE MURKOWSKI asked if the life settlement provider
needs to be defined.
CHAIRMAN ROKEBERG said, "Possibly." He asked Representative
Brice if he removed his objection to Amendment 1.
REPRESENTATIVE BRICE replied that he would remove his objection
with the caveat that the issue be revisited.
Number 0948
CHAIRMAN ROKEBERG asked if there were further objections to
Amendment 1. There being none, Amendment 1 was adopted.
REPRESENTATIVE HALCRO made a motion to adopt Amendment 2.
REPRESENTATIVE BRICE objected for the purpose of discussion.
CHAIRMAN ROKEBERG explained that Amendment 2 dovetails with
Amendment 1 by deleting the defining criteria of a viator or a
person who is chronically ill who wishes to sell his or her
existing policy. He said, "This goes in a part of the bill that
refers to both life settlement agreements and viatical
settlements."
REPRESENTATIVE BRICE said, "Then you're defining who is going to
be the provider of the life settlement contract, which was
Representative Murkowski's concern."
Number 1016
MR. MCNERNEY asked whether Version I includes all of the
amendments being addressed now.
CHAIRMAN ROKEBERG clarified that it does not. He said he had a
question regarding page 5, line 1 of Version I.
MR. MCNERNEY indicated he did not have the amendments.
REPRESENTATIVE CISSNA asked if Amendment 2 makes the language
include the life settlement.
CHAIRMAN ROKEBERG stated that he had a problem with Amendment 2.
He suggested that DCED address those concerns.
BOB LOHR, Director, Division of Insurance, Department of
Community and Economic Development, came forward, indicating Katy
Campbell, Actuary L/H from the Division of insurance, would
speak.
KATY CAMPBELL, Actuary L/H, Division of Insurance, Department of
Community and Economic Development, explained that Amendment 2
modifies the definition of a viator, but it does not exclude
healthy people from selling their policies. She said:
What that does, then, is it flows through into all of
the other definitions. A viatical settlement provider
or a viatical settlement contract is between a provider
and a viator; but in this case, since the viator could
be anyone - someone who has a terminal illness or
someone who doesn't - it's kind of all-encompassing of
... what's termed a life settlement and what's termed a
viatical settlement.
CHAIRMAN ROKEBERG explained to Mr. McNerney that the DCED
recommends the change of the definition of a viator by deleting
"with a catastrophic or life-threatening chronic illness or
condition". He said, "Therefore, it bunches together a viator
and a life settlement participant."
MS. CAMPBELL stated that the person is called an owner, not a
participant.
Number 1196
CHAIRMAN ROKEBERG wondered if that is good industry practice.
MR. MCNERNEY indicated it is not the recommended practice. He
said it is a topic being discussed right now with the National
Association of Insurance Commissioner (NAIC). He stated that the
NAIC may come up with a different national term because the
insurance industry has raised some questions about using the word
"owner". He explained:
In today's meeting in Orlando, they asked us to redo
the current working draft to make it called a "life
settler". That's just a struggle to find a term that
everybody can agree on.
CHAIRMAN ROKEBERG asked when the proceedings are going to
terminate and when a report will be issued.
MR. MCNERNEY replied that the NAIC has a working model for
viatical law; the newest version was adopted 18 months ago.
CHAIRMAN ROKEBERG asked whether Version I was a reflection of
that model.
MR. MCNERNEY said it is similar, but it does not have all the
items in the NAIC model. He explained that there is a concern
with purchaser problems; as a result, the working committee is
under a mandate to modify that law during this calendar year. He
said the VAA (Viatical Association of America)has submitted to
the NAIC a proposed revision. The revision was under discussion
today between the representatives of the various insurance
departments and the representatives of the life insurance
industry.
Number 1300
MR. MCNERNEY indicated there will be a new draft that he is
writing that needs to be sent to the NAIC by February 4, 2000.
In the draft, there are two distinct definitions. He is not sure
whether they will ultimately be combined into one definition.
CHAIRMAN ROKEBERG commented that it is his desire to move the
bill along as rapidly as possible so that it can be enacted into
law this year. He said it may be possible to amend the bill en
route.
MR. MCNERNEY asked whether Version I is meant to replace, in
total, Version H.
CHAIRMAN ROKEBERG stated that he does not intend to move Version
I out of the committee today. He is not comfortable with
Amendment 2. He referred to Representative Murkowski's earlier
comments regarding adding to the definitions, saying he is not
sure if that would create significant drafting problems.
MR. USERA said:
It's precisely because of this that we wanted to adopt
the regulations rather than to have the whole thing in
statute. I think our regulations would answer most of
your questions. We can go with the flow; that way, if
the industry changes its definition, we can ... change
our definition, too, to accommodate. I'm not certain
that it wouldn't be perhaps wise to differentiate
between a life settler and a viator - and very simply
do so ... The definition would have to be in statute,
and then let our regulations carry the rest of it.
Number 1494
CHAIRMAN ROKEBERG said he agrees with that. He asked
Representative Halcro to withdraw Amendment 2.
REPRESENTATIVE HALCRO withdrew Amendment 2.
CHAIRMAN ROKEBERG asked DCED to make recommendations to the
committee to ameliorate this problem by providing the definitions
for life settlement that need to be incorporated within the
statute and are consistent with regulation.
Number 1523
MR. USERA indicated DCED's proposed regulations are included in
the packet provided to the committee. He said the definitions
will be used unless they are changed.
CHAIRMAN ROKEBERG asked Mr. Usera to make sure the committee is
on track because he is not intending to adopt Amendment 2. He
commented that Amendment 1 is being adopted to add the concept of
life settlement into Version I, but further definition is needed
to be consistent with the regulations.
MR. USERA said "owner" is defined.
CHAIRMAN ROKEBERG said "owner" needs to be defined and perhaps
"provider". He was not sure.
MR. USERA said DCED would look it over and make a recommendation.
Number 1586
CHAIRMAN ROKEBERG said he thinks it would be easier if the
definitions are in the bill separately, in case there are any
changes in the definition by the NAIC. Thus they could be
adopted more readily.
MR. USERA said all right.
Number 1600
CHAIRMAN ROKEBERG asked Mr. McNerney if he expects to be
maintaining the distinction between the definition of a viator
and a life settlement owner.
MR. MCNERNEY said he believes it is better to have them separate.
He said:
Because there may be things that the legislature or the
department want to do, in terms of regulating a
transaction that are different when you are dealing
with somebody who's got a very short life expectancy,
which is the viatical transaction.
MR. MCNERNEY explained the NAIC has not voted one way or another
on that concept.
CHAIRMAN ROKEBERG said that verifies what he just said. He asked
Mr. Lohr or Ms. Campbell to explain the outline of Version I.
Number 1666
MR. LOHR indicated the work draft reflects the view of the
Division of Insurance that certain elements of regulating the
viatical transactions from an insurance perspective need to be
specified in statute. He said those have been incorporated into
the bill in a way that DCED's attorney general feels does provide
an adequate basis for regulation of viatical settlements, from
the point of view of the transaction between the owner of the
policy, the viator, and the next step in the process. He
commented that regulations have not been done yet, but DCED does
intend to use the NAIC model. The initial draft regulations
would start with the NAIC approach.
MS. CAMPBELL said subsections (a) through (f), outlined in
Section 2 of Version I, were taken out of the NAIC model and put
into a form that allows the division to write a regulation on
that aspect.
CHAIRMAN ROKEBERG asked Mr. Usera to discuss Sections (3) and (4)
in Version I.
MR. USERA indicated DCED had asked for a modification of the
definition of securities in Section 3. It had been asked for the
definition to include the phrase "viatical settlement interest"
which would remove any bone of contention with people in the
industry. He believes these instruments are covered under
investment contract. He said the DBSC wants the definitions of
viatical settlement interest and viator to be compatible with
those of the Division of Insurance.
Number 1843
CHAIRMAN ROKEBERG responded:
As well as the adoption of Amendment 1, which adds the
life settlement interest to ... Section 3 ... So, this
bill follows the committee's mandate of separating the
regulation of the packaging and development of a
product by the insurance division, and leaves the
authority of the enforcement of the marketing to the
public as a security to your division?
MR. USERA said that is correct.
CHAIRMAN ROKEBERG said:
You've accomplished that by merely adding these
definitions and these two concepts into your definition
of security, and then following that up with
regulations.
MR. USERA said that is also correct.
CHAIRMAN ROKEBERG said that is an important point he wants the
committee to understand, because he has a question and a problem
with that.
Number 1883
REPRESENTATIVE MURKOWSKI asked, "This is consistent, then, with
your department's intention to include within the definition?"
MR. USERA said it is. He explained that the DBSC has a very
broad regulation-writing power and therefore does not need to
have anything in the statute in order to write regulations to
begin with. The Division of Insurance does not have that broad
power, but both divisions have discussed the definitions and
tried to make them similar so that there is no conflict. He
indicated the department likes as few definitions as possible to
be set out in statute.
REPRESENTATIVE MURKOWSKI asked:
Then down the road, when all this is in place, is this
going to be confusing to a user of viatical settlements
as to who they talk to..., because you have two
entities that are overseeing this?
MR. USERA said he did not believe so. Viaticals are complicated
and confusing to laymen in the first place. He explained:
Our disclosure documents, and Insurance's disclosure
documents ... you can see what ours do. We've given
you copies of our disclosure documents that we require,
and Insurance will probably do a disclosure document
also that covers their involvement in the transaction.
MR. USERA said he does not think there should be any confusion.
Number 1980
REPRESENTATIVE MURKOWSKI asked, "Which one of you has the fiscal
note?"
MR. USERA replied, "Ours is zero."
MR. LOHR stated that the Division of Insurance has a fiscal note
of $25,000.
REPRESENTATIVE MURKOWSKI said, "And yours, as I recall, was just
a clerical position, getting that person up with the system, and
then that is a phase-out over ..."
MR. LOHR responded, "Two years."
CHAIRMAN ROKEBERG wondered if it is a self-funding fiscal note.
MR. LOHR said it is.
Number 2003
CHAIRMAN ROKEBERG commented that he would like to see a bright
line of authority in statute between the two divisions so that
there is no conflict.
MR. USERA said:
If it's a question of the transaction between the
viator ... and the settlement provider - in other
words, between the person who's going to die and ...
the person purchasing his insurance policy - that's
clearly in Insurance's bailiwick. If it's a
transaction between somebody marketing this policy to
another third-party investor, it's clearly our
jurisdiction there. And [it] should not be very
difficult to tell which it is.
CHAIRMAN ROKEBERG said he does not see why a bright line
statement cannot be made in statute.
MR. USERA replied that he could write something up.
CHAIRMAN ROKEBERG said he would appreciate that. He commented,
"It would also give you authority to do that. You assume you
already have authority; I don't disagree with that." He said it
is not self-evident who has jurisdiction when one reads the law.
He prefers the statute be readable to the average person. He
would like a distinguishing, bright-line, black-letter law. He
wondered if this would cause any problems.
Number 2115
MR. LOHR said he does not think it would. He pointed out that
the Division of Insurance does not believe the transaction
between an owner of a policy and the initial [purchaser] of that
policy is within the definition of the business of insurance.
That is why the division feels it needs specific statutory
authority to adopt regulations. He explained:
We felt that if we adopted regulations without that
clear-cut statutory authority, someone could go [to]
the definition of the business of insurance and make an
argument that our regulations exceed the authority
provided.... It's clear that it needs to meet
somewhere in the middle. And whether there is any
policy reason or need for overlap, ... that remains to
be seen. We want to accommodate you with respect to
regulating only that portion of the transaction which
you and the committee feel you want regulated by the
Division of Insurance. We're doing this as an
accommodation, because you're asking and providing us
access to the resources to do it, not because it fits
within the definition of the business of insurance.
Number 2175
CHAIRMAN ROKEBERG stated that he is concerned about the money.
REPRESENTATIVE BRICE asked whether it speaks anywhere about who
can sell a life settlement interest. Is it anybody registered to
sell securities or viatical providers?
MR. USERA responded that if they are selling the investments to
third parties, then they fall under the DBSC's regulations. If
it is between the owner of the policy and somebody in the
business of buying those policies, then it would fall under the
Division of Insurance's regulations.
MS. CAMPBELL clarified, "On the insurance end, without that
change to the viator definition, we would have to put in specific
life settlement authority in here."
CHAIRMAN ROKEBERG wondered if she is going to provide the
committee with that.
MS. CAMPBELL said she would. She indicated the transaction
between the owner of the policy and the viatical settlement
provider is where the Division of Insurance comes in.
REPRESENTATIVE BRICE commented, "My confusion comes when we say
'viatical,' because I'm not talking about viaticals, I'm talking
specifically about life settlement interests."
Number 2247
REPRESENTATIVE HALCRO wondered why it is necessary to put this
into statute if the division has gone to the extent of creating
regulations for the sale of viaticals.
CHAIRMAN ROKEBERG indicated it is the separation of powers.
REPRESENTATIVE HALCRO said, "But if they already have the
authority to create regulations, it seems to me they already have
that power."
Number 2267
MR. USERA said the division does not believe it needs authority
to adopt regulations, but it needs to be included in statute to
avoid any conflict or confusion. He added, "If we put it in
statute, that forever rids us of the problem of having to prove
we have jurisdiction ... under the investment contract theory."
CHAIRMAN ROKEBERG said the goal is to avoid conflicts and
unnecessary litigation about jurisdictional problems in the
future.
REPRESENTATIVE MURKOWSKI referred to Version I and Amendment 1.
She asked:
How does this expand the scope and responsibilities of
both of your departments, because now we're not just
talking about those viaticals where we've got terminal
individuals. We've got anybody. ... Does this adjust
your fiscal note at all? How much do you anticipate
that you're going to be called upon to deal with this?
MR. USERA replied that he does not anticipate having to do
anything to deal with these things. He explained:
From a securities standpoint, the life settlement is
not a very generous investment to an individual. There
will be sales of these things quite often, but they'll
be to institutions.... We exempt institutional buyers
from our regulations because there's no need to protect
a large insurance company or a bank from buying these
things. An individual probably is not going to want to
tie his money up for ten to fifteen years, no matter
how big the return is.... We don't believe there'll be
very many at all. But if there are, it's simply a
matter of filling out our form and paying $250, and
their license to sell them.
Number 2402
MR. MCNERNEY said:
Draft [Version] I takes out all the language that we
had worked with the securities department and, I
thought, had reached agreement about, dealing with
exemptions. And some of that language was in [Version]
H.... Now, in Draft I, it's all gone.
MR. USERA indicated it is gone from the statutes, but it will be
included in the regulations. He stated that he would send Mr.
McNerney a copy of the regulation.
MR. MCNERNEY stated:
From the industry's point of view, what's happening
here - in both the insurance department side of this
bill and the securities department side of this bill,
as I see Version I - is to take a little bit different
approach in terms of passing minimal legislation and
leaving all of the detail to the regulation procedure.
And I know that, for example, in (indisc.), is going in
exactly the opposite direction because of their belief
that the legislators ought to be involved in that kind
of information. And the NAIC bill - the existing one,
and certainly the newest one that's being worked on,
but even the one that was passed 18 months ago - gave
the legislature the more involvement in deciding a lot
of the issues....
TAPE 00-01, SIDE B
Number 0005
CHAIRMAN ROKEBERG explained to Mr. McNerney that the committee
had heard this bill five times. He said it is not a major part
of the business activity of the State of Alaska, but certainly
warrants the overview of the Administration and the legislature
to make sure the public is protected via statute and regulation.
He appreciates his point of view.
MR. MCNERNEY said there are consumer issues that have to be
balanced between the seller of the policy and the investor in the
policy. He stated:
One of the things that is kind of a policy issue is:
Are you going to do things that maybe help an investor
but, perhaps from a policy point of view, you don't
want to do to a seller? For example, the whole
question of whether or not, what information about the
insured person, you're going to require be given to the
investor.
The investor [is] going to say, "I want to know as much
as possible about the insured whose life is insured
under the policy I'm purchasing, in order to confirm
the accuracy of what I'm being told and being able to
maintain my property after I buy this policy." And
there's been a strong argument in the different multi-
state agencies about viator protection. Are you going
to not disclose the viator's name and address? ...
There's an example of a policy question that affects
both consumers who are buyers or consumers who are
sellers.
You have a similar issue that was addressed in
[Version] H - I can't find it in [Version] I - about
recision rights. Because when you rescind, when you
give one side or the other the right to rescind the
transaction, by definition you affect the other side.
So, if you follow the procedure that other states have
of saying that a viator has the right to rescind a
transaction within so many days of some event - the
signing of the contract, the closing, or whatever it
might be - you have to then balance the question about
... if the viator rescinds the policy and ... the
investor is the new owner of the policy, the new
beneficiary, what happens to that purchaser's right?
Number 0130
CHAIRMAN ROKEBERG said he appreciates Mr. McNerney's comments.
MR. MCNERNEY continued:
If the transaction ends up - which is what many of the
private investment models are - ... that the title
(indisc.) ownership of the policy and the designation
of the new beneficiary goes directly from the viator to
the ultimate investor, and if you have a problem in
that transaction - let's say the investor has a problem
and says..., "I was done wrong in this deal someway" -
well, in many of the cases, it may involve the viator
who was the seller of the policy.
For example, suppose that the policy turns out to have
been clean-sheeted and the insurance comes in and
rescinds the policy.... Well, now, the investor is
wronged, and the person who did the wrong is the
viator, and you have one transaction, you have one
closing. Which department has jurisdiction over the
three parties involved in that deal, and maybe the
four? ... I agree that ... the industry would like that
non-legal language as well.
Number 0229
CHAIRMAN ROKEBERG said at the last meeting it was the objective
to get a meeting of the minds among the various parties involved
under a very simple mandate. He said he is weary of this
discussion because this is the fourth or fifth meeting on this
bill. He does not take lightly Mr. McNerney comments regarding
consumer protection. It is the intention of the committee to
review the regulations and the entire package before the bill is
signed into law.
MR. MCNERNEY indicated his impression that there had been an
agreement on a bill draft already.
Number 0318
CHAIRMAN ROKEBERG said he is disturbed to be having this
conversation during the meeting. It seems to him there has been
a breakdown between Version H and Version I between the
Administration and the Association.
MR. LOHR said the Division of Insurance took the table of
contents from the NAIC model and suggested it as the outline that
is in statute. This is something that was recommended to the
Division of Insurance by the Department of Law, as a way to
ensure they had the legal authority to adopt the NAIC model
regulations as their regulations. That was the sole purpose. It
was not to expand the regulatory authority of the division or
anything else.
MR. MCNERNEY commented that the NAIC model regulations are
written to fit with the NAIC model Act. Many of the subjects
addressed in the NAIC model Act are not repeated in the
regulations. In Version I, essentially all of the language from
the NAIC model has been taken out.
Number 0400
REPRESENTATIVE MURKOWSKI said she could not find privacy
protection in the regulations. She asked whether it had been
addressed yet.
MR. USERA stated that it is addressed by default. He said the
disclosure requirements for the investor do not require
disclosure of the owner of the policy or the viator's name.
REPRESENTATIVE MURKOWSKI asked if it is referenced by the policy
number.
MR. USERA indicated that the policy number may or may not. He
said the disclosure form would govern what disclosures must be
given. The mandate from the last meeting was to work with Mr.
McNerney on writing regulations. He wonders if this was
misconceived by Mr. McNerney. They worked very closely with him
and got most of their definitions from him. He noted that it is
very easy to redo a disclosure form as opposed to a statute.
Number 0490
MR. MCNERNEY referred to the exemption provisions in terms of
registration and asked if statutory authority is needed to create
that exemption.
MR. USERA replied no.
MR. MCNERNEY said he would be happy to look at the newest draft
of the regulations and the form and provide comments.
CHAIRMAN ROKEBERG asked Mr. Lohr at what level the Division of
Insurance is on their drafting.
MR. LOHR explained that the division could begin the process of
drafting, but it has not been done yet.
CHAIRMAN ROKEBERG pointed out there have been important concerns
brought up by Mr. McNerney.
MR. LOHR said the table of contents used as a guide was from both
the model regulations and the model statutes of NAIC. It is the
intention to draft the regulations to cover both models. It
would be a comprehensive set of regulations with respect to the
first step in the transaction.
CHAIRMAN ROKEBERG said:
I appreciate that, and I appreciate Mr. McNerney
volunteering to help out, because I think that's very
important. The committee would take it (indisc.) not
to follow some of those recommendations - although we
understand that Mr. McNerney, ... this particular
statute and scheme is not exactly what he's
recommending. It's a creature of your Administration.
MR. USERA recommended inserting a provision into the bill to
allow the Division of Insurance to write the regulations now so
that they can become simultaneously effective with the bill.
CHAIRMAN ROKEBERG asked how that would be done without an
authorized fiscal note.
MR. USERA indicated the Department of Law has "canned" language
it can use.
CHAIRMAN ROKEBERG said he does not understand why a fiscal note
needs to be attached.
Number 0640
MR. USERA responded that it would say that the department has
[authority] to draft regulations, notwithstanding that they will
not have authority until passage of the bill.
CHAIRMAN ROKEBERG said it is an excellent idea.
MR. MCNERNEY agreed.
REPRESENTATIVE MURKOWSKI referred to Mr. Usera's comment
regarding dealing with the privacy aspect by default. She asked
why the privacy aspect should not be addressed a little more
squarely.
MR. USERA indicated that should be in the regulations the
Division of Insurance drafts, because it is between the viator
and the viatical provider.
REPRESENTATIVE MURKOWSKI asked if it is in the table of contents.
MR. USERA said he believes so.
REPRESENTATIVE MURKOWSKI said it is in Section 2, subsection (e),
paragraph (2). She asked, "It will be out there somewhere that
we are concerned about the privacy of the individuals?"
MS. CAMPBELL replied it would be.
Number 0730
MR. MCNERNEY said the NAIC model prohibits the disclosure of
information without the consent of the viator. This topic is
currently under discussion because there has been an increased
sensitivity to what the investor legitimately needs to know about
the policy being bought.
CHAIRMAN ROKEBERG asked, "You're saying there's difficulty in
review of that particular provision (indisc.)?"
MR. MCNERNEY responded that there is difficulty because all of
the viatical laws - as they were originally drafted, including
the most recent NAIC model - were drafted with a view toward
protecting the viator. He said:
What everybody has come to understand - and
particularly the regulators - is that they don't have
very many problems on the viator side of the
transaction. The problems and complaints they get are
on the purchaser side or investor's side of the
transaction. And so now the committees are trying to
go back to the viatical laws and look at how they have
to be balanced so that the purchaser or investor is
equally protected in investing his money in buying one
of these policies. And the privacy issue is one of the
... most interesting topics of conversation, because an
investor can legitimately argue, ..."If I'm buying a
life insurance policy - the whole policy or an interest
in a policy - how do I know what I'm getting if I don't
know the name of the insured, and the policy number,
and the name of the company, so I can call up ... and
say, 'Is there really a policy on Mike McNerney's
life?'"
MR. USERA said he believes the issues of privacy, with respect to
the viator, can be handled under the regulations done by the
Division of Insurance.
Number 0870
CHAIRMAN ROKEBERG said he sees where the legislature would be
most interested in this issue because of its constitutional
position and the desire to protect the consumer.
MR. USERA said he does not think the investor is entitled to any
more than is included in the disclosure forms. He thinks the
investor would be well informed if those forms were filled out
completely.
CHAIRMAN ROKEBERG asked, "What information about the viator would
be in those forms?"
MR. USERA indicated the forms include the number of the policy
and the name of the insurance company.
REPRESENTATIVE BRICE wondered if the investor could cross-
reference the investor's name with the policy number by
contacting the insurance company.
MR. USERA said he does not believe the insurance company would
give that information out. The regulations of the Division of
Insurance mandate that that information not be given out.
MR. LOHR said he would have to check on that because he was not
sure.
MS. CAMPBELL said she does not believe the insurance company
would give out private information to anyone who calls. If a
person called the insurance company and asked about a particular
policy number, it might not be a "yes" or "no" response.
MR. USERA asked, "But your regulations could address whether they
can give that?"
MS. CAMPBELL replied yes.
CHAIRMAN ROKEBERG asked Mr. McNerney what he is going to
recommend to the NAIC.
Number 0970
MR. MCNERNEY recommended that it be required to give the person's
name, in order to protect the consumer. He thinks the viator
should be told that, and then the viator would have to consent to
the condition of the sale.
MR. USERA respectfully disagreed. He said he thinks it is a
prescription for murder.
MR. MCNERNEY stated that he understands the question. He said
there have been companies that have not been members of his
association which have been engaged in large-scale fraud. They
have hidden behind the privacy as a reason why they are not
telling the investor the details about the policy. He said it is
not a comfortable answer. He feels the NAIC may keep its
existing provision which states that the viator has to give
consent.
CHAIRMAN ROKEBERG asked whether there are no mechanisms, by a
third-party verification, through the provider.
MR. MCNERNEY indicated the provider does that, but there is no
central service bank of data. He does not object to Mr. Usera's
statement regarding the disclosure form. He stated:
I'm just trying to tell you ..., wherever you get into
that policy decision, ... somebody's got to make that
call. From the industry's point of view, we just want
it to be clear as to what we're supposed to do, and we
want it to be clear that both departments agree, so
that we don't get a requirement from the insurance
department that conflicts with the requirement from the
securities department.
Number 1070
CHAIRMAN ROKEBERG asked whether there is any way to ensure that
both sets of regulations are consistent.
MR. USERA said he would give a promise.
MR. LOHR said it is the leaning of the DBSC toward increased
privacy and the maintenance of privacy. He indicated it is also
the leaning of the Division of Insurance with respect to the
regulations. He said he will cooperate on all the other points.
He agrees with Mr. McNerney that having two agencies involved in
doing regulation complicates the equation and calls for good
communication.
Number 1110
CHAIRMAN ROKEBERG said it is his preference to not have two sets
of regulations.
MR. USERA indicated there is a constitutional limitation. He
stated that the constitution provides for privacy. Disclosing
something such as an illness is not in the public interest.
CHAIRMAN ROKEBERG said he thinks Mr. Usera is correct.
REPRESENTATIVE MURKOWSKI wondered about the investor. She said
there are two different entities involved. She asked how the
provider can be protected. She asked:
Is it just sufficient that there is a policy number out
there with Hartford Insurance or something? Is that
sufficient information to assure the investor, through
the Division of Insurance, that this is a legitimate
investment?
MR. USERA responded:
There were a million five worth of these policies sold
here in Alaska without one bit of information given
out. So, there were enough investors willing to part
with their money, based on the outlandish returns being
advertised. I think now, with the disclosure that we
require, we're going to give them a lot more
information .... If they don't like it, because they
don't have the name of the viator, I think they don't
buy the investment. That's the choice that they make.
Number 1218
CHAIRMAN ROKEBERG responded:
Well, point-in-fact, looking at the regulations here
that you drafted from Banking .... You have the name
of the company as well as the policy.... Now, is that
going to be allowable for the Division of Insurance?
MS. CAMPBELL replied yes.
CHAIRMAN ROKEBERG asked:
So there would be at least one step here for that
perspective.... The investor could verify that there
actually is a policy ... if, in fact, they would give
the information. Now, would they verify it? And you
say you don't think so. Is that correct?
Number 1247
MS. CAMPBELL said she thinks the policy may be verified, but the
name, address and phone number of the viator would not be given
out.
CHAIRMAN ROKEBERG wondered if a regulation that speaks to that is
needed.
MS. CAMPBELL responded yes.
CHAIRMAN ROKEBERG asked if it is correct that it would be
mandated for the policy and number to be given, but for the name
and other particulars to be excluded.
MS. CAMPBELL said that is correct.
MR. MCNERNEY stated that it is without the consent of the viator.
CHAIRMAN ROKEBERG said the issue is consent or non-consent, not
the name of the viator. He asked, "Is the name a sufficient
hurdle, Mr. McNerney?"
MR. USERA interjected that by giving the name in a viatical
contract, then it would be known that the person has a life-
threatening illness.
CHAIRMAN ROKEBERG clarified that he wants to know whether not
giving the name is adequate.
MR. MCNERNEY said he cannot remember whether the NAIC model
specifically addresses the name or addresses all types of
information about the viator.
CHAIRMAN ROKEBERG said he is just talking about mandating the
insurance underwriter to verify that a policy exists.
Number 1354
REPRESENTATIVE BRICE stated that it should be clear on the
insurance company end that it is a simple yes or no question.
MR. MCNERNEY suggested DCED look at Section 6 of the NAIC model,
which refers to the privacy issue.
CHAIRMAN ROKEBERG indicated the committee will refer to it.
MR. MCNERNEY asked what the proposed procedure is for the bill.
CHAIRMAN ROKEBERG commented that he would like to take it up the
following Wednesday.
MR. MCNERNEY said he would look at Version I and then speak with
both divisions.
REPRESENTATIVE HALCRO referred to the comments made by
Representative Brice. He wondered how he would know whether a
policy had not already been sold to someone else. He asked if
there is a safeguard.
Number 1504
MR. USERA stated that there is no guarantee. He added:
The amount of data we're going to collect, including
financial statements, ... that may have upset Mr.
McNerney. He didn't like the idea that we're going to
require them to give us financial statements.
CHAIRMAN ROKEBERG asked, "What? The agent?"
MR. USERA said yes. He indicated financial statements would be
required from the viatical settlement purchaser.
CHAIRMAN ROKEBERG wondered why that would be done.
MR. USERA commented it is to ensure it is a reliable, viable
entity. He said this falls under his division.
CHAIRMAN ROKEBERG said he is doubtful. He thinks it falls under
the Division of Insurance.
Number 1546
MS. CAMPBELL clarified that the viatical settlement provider is
selling an interest in a contract. She indicated it is past the
insurance piece of it.
MR. USERA said that is correct. It is in the investment phase of
the process. He said the company that wants to sell these things
to investors is going to have to be in business for three years
or tell his division why it should be exempt from that.
CHAIRMAN ROKEBERG asked if both divisions would be regulating
viatical settlement providers.
MR. USERA replied yes, but it will be from two different
standpoints.
CHAIRMAN ROKEBERG said, "But the provider doesn't do the
marketing."
MR. USERA said that is correct, but when marketing is involved
his division then comes in.
CHAIRMAN ROKEBERG replied:
I know..., but he's not the provider. The provider ...
in the chain of the transaction ... wouldn't be
marketing to the consumer. They're selling it to a
wholesaler.
MR. USERA noted there may be another person involved, but the
"viatical settlement provider" is the institution that buys the
policy from the viator and then sells it to an investor.
CHAIRMAN ROKEBERG said:
They're the packager, but normally its the agents and
brokers that sell it to the consumers, not the
provider, although if they do - it's provider acts as a
retailer -then he would be under your purview. Right?
Number 1634
MR. USERA replied:
As long as the transaction between the viator and the
ultimate packager of these things, that's under
Insurance. If it's from the provider, and any brokers
he uses in there to get these to investors, they come
under us.
CHAIRMAN ROKEBERG said he had thought there was another
middleman. He said in Alaska most of the sales have been
brokered by Alaskan people acting as agents for the providers.
MR. USERA agreed, but said it all falls under investments.
CHAIRMAN ROKEBERG said, "The agents, but not the provider."
REPRESENTATIVE BRICE stated that the provider is selling it to
somebody.
CHAIRMAN ROKEBERG commented that it is being sold to an agent or
a broker.
MR. USERA said:
What happened up here was these insurance agents ...
were selling these people interest, which they then had
to go back and find. Many of the contracts were not
concluded with the viator yet.
CHAIRMAN ROKEBERG wondered if they were sold on the (indisc.).
MR. USERA responded:
Exactly. That was one of our complaints. Sometimes
there were six, seven, eight months in between the
taking of the person's money, the investor's money, and
... matching him up with a viatical to buy.
CHAIRMAN ROKEBERG asked if they were being guaranteed.
MR. USERA stated, "They were guaranteeing them 48 percent return
on their money. And the idiots are buying these things like that
.... We needed to protect somebody."
Number 1748
CHAIRMAN ROKEBERG said he has a concern with cross-jurisdiction.
MR. USERA explained that the Division of Insurance and the DBSC
have pledged to work closely together. He said a bright-line
test would be given to the committee in the next few days.
CHAIRMAN ROKEBERG stated, "Right now, we're painting that line of
demarcation right down the hallway of a provider somewhere in
Florida. And I guess I'm a little concerned about that."
MR. USERA said, "He's going to wear two hats."
CHAIRMAN ROKEBERG indicated that depends. He wondered about a
broker in Alaska who was an agent under his provision.
MR. USERA clarified that the insurance brokers in Alaska were not
buying the policies from the provider.
CHAIRMAN ROKEBERG said there were complaints filed.
MR. USERA said, "We never went after the insurance people. We
went after the provider."
CHAIRMAN ROKEBERG replied, "You put them out of business,
though."
MR. USERA said that was not the intent.
CHAIRMAN ROKEBERG said, "You forced a voluntary cease-and-desist
order on these people .... That's called throwing them out of
business."
Number 1852
MR. USERA responded that it was thought so, with good reason.
CHAIRMAN ROKEBERG stated, "They were selling a provider's
product. They were not going out and putting together their own
deals."
REPRESENTATIVE CISSNA said it is not quite the same as murder.
MR. USERA said many of the investors the brokers sold to were
called. They were asked if the policies may have been
contestable. He said it was asked what a contestable policy was.
He thinks it is basic information a investor should have.
CHAIRMAN ROKEBERG said Mr. Usera is not answering his question.
He said the line is trying to be determined. He added:
When they have the provider who packages the deal with
the viator ... and then turns around and either retails
- sells it to a customer or goes through an agent - ...
in your regulations you have this $250 license ....
What's the term for that person?
MR. USERA said the term is "viatical settlement provider".
CHAIRMAN ROKEBERG asked about the agent who sells it.
MR. USERA responded, "He's going to have agents, but those are
his responsibility to give, to line those agents up for his
purposes and for ours."
CHAIRMAN ROKEBERG wondered, "They're not going to be licensed?"
MR. USERA said there is a form the settlement provider will be
required to give. The form will list the names of the agents.
They will have to give the dates of their registrations and their
affiliations. If someone is going to be an agent, he or she has
to take a test and the provider will have to pay the fee.
CHAIRMAN ROKEBERG commented, "I just had a different mind set of
the chain of events coming into the room today, because you'd
both basically be regulating a provider."
Number 2025
MR. LOHR said that is correct. He believes under most
transactions there will be overlapping authority between the two
divisions with respect to the viatical settlement provider. He
endorses the bright-line test and hopes it can be done, but he
feels an overlap is necessary with respect to the center of that
transaction.
MR. USERA said he disagrees. He does not think it will be that
difficult. He said, "If he's dealing with the viator in any
shape or form, he comes under you. As soon as he's dealing with
an investor or any part of the investment process, he comes under
us."
MR. LOHR said that is right. It might be the same person;
therefore, both divisions regulate elements of that person's
activity.
MR. USERA said he does not think it will be difficult to write a
bright-line test.
CHAIRMAN ROKEBERG said he believes the Senate will ask why two
sets of regulations are being written and why there is a fiscal
note.
MR. USERA said, "Call me."
CHAIRMAN ROKEBERG said he wants to know what to tell the Senate.
Number 2102
MR. USERA stated that the fiscal note from the Division of
Insurance is a clean slate. He commented, "They're taking money
in, they're putting money out. We're taking money in and
nothing's going out." He said he sees it as a win-win situation
for the state.
CHAIRMAN ROKEBERG said he knows, but thinks it is a can of worms.
MR. USERA said he does not think so.
CHAIRMAN ROKEBERG said he does not like it, but it is what he
asked the two divisions to do.
REPRESENTATIVE MURKOWSKI referred to Representative Halcro's
concern. She wondered if there is any way, when writing the
regulations, to maintain a registry of the policy numbers on the
viatical disclosures. It seems to her there should be a way to
address the concern of someone "shopping the same policy and
selling it 16 different times".
Number 2237
MS. CAMPBELL replied that the insurance contract has an
assignment provision. She explained that once a policy is sold
there is an assignment that occurs whereby the ownership of the
policy changes. The person who originally bought the policy is
no longer the owner. At the very least, the insurance company
could inform someone that the policy has already been assigned.
MR. USERA said there is a difficulty built in. He stated, "A lot
of these companies sale a slice of the deal, ... so you might
have 10 or 15 investors right off the bat."
REPRESENTATIVE MURKOWSKI said it does not really solve the
problem.
REPRESENTATIVE HALCRO wondered what happens if the policy that is
sold is not in the jurisdiction of the divisions, such as a
policy on someone who lives in New York or California.
MR. USERA explained that before a policy can be sold to an
investor in this state, they must be registered. They need to
disclose information such as financial statements. It is his
experience that people running scams do not bother registering
because they are too easily found out. He indicated there may be
people who get away with this, but the divisions try to be
vigilant.
REPRESENTATIVE HALCRO said he thinks the state's position should
be, to some extent, "buyer beware."
MR. USERA replied that should always be the case.
TAPE 00-02, SIDE A
Number 0004
CHAIRMAN ROKEBERG referred to page 2, subsection (d). He
wondered what the scope of the examination would be.
MR. LOHR said he believes the provision is aimed at a financial
examination similar to what the division does to ensure solvency
for domestic companies.
MS. CAMPBELL said it is the provision that discusses
reimbursement the division's expenses when a company is examined.
CHAIRMAN ROKEBERG said he just wanted to clear that up.
MR. LOHR affirmed that is the typical practice.
Number 0117
CHAIRMAN ROKEBERG asked Mr. Usera what exactly he will be
providing to the committee.
MR. USERA responded that he will be providing a bright-line test
and some suggested language for getting regulations in place
prior to the effective date of the bill. He said he would also
be doing the life settlement definitions and taking care of any
drafts on the amendment.
MR. LOHR indicated the Division of Insurance was trying to stay
out of that area, despite the national trend to the contrary. He
said the divisions came at the chairman's request, to offer any
help.
CHAIRMAN ROKEBERG agreed, saying it was at the insistence of the
DBSC that this dilemma exists.
MR. USERA stated that the only alternative is to ban the sale
entirely in Alaska.
CHAIRMAN ROKEBERG clarified that the dilemma had arisen due to a
conflict between local administrative policy and the national
trend in terms of regulations. [HB 190 was held over.]
ADJOURNMENT
Number 0314
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:10 p.m.
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