Legislature(1999 - 2000)
01/19/2000 03:25 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.]
| Document Name | Date/Time | Subjects |
|---|