OIR Viatical Settlement Proposed Rules Draw Concern

On Monday, January 7, 2007, the Office of Insurance Regulation (“OIR”) held two public hearings relating to viatical settlements. 

The first hearing was held on Proposed Rule 690-204.101 relating to Disclosures to Viator Disbursement.  To view the complete text of the Proposed Rule, click here.

The purpose of this Proposed Rule is to require a viatical settlement provider to disclose to viators the gross amount it is paying for the insurance policy being viaticated, the net being paid to the viator, and a breakdown of all funds it is paying to other persons such as viatical settlement brokers. 

The second hearing was held on Proposed Rules 690-204.010, 204.020, 204.030, 204.040, 204.050, 204.060, 204.070 relating to Purpose and Scope, Definitions, Forms Incorporated by reference, Prohibited Practices, Verification of Coverage, Required Supplemental Annual Transaction Detail, and Anti-Fraud, respectively.  The purpose of these Proposed Rules is to implement the provisions of Chapter 626, Part X, which regulates the business of viatical settlements.  To view the complete text of these Rules, click here.

The OIR representatives presiding over the hearing included OIR Assistant General Counsel Bob Prentiss and Bernie Stoffel.

 

Proposed Rule 690-204.101 relating to Disclosures to Viator of Disbursement

Mr. Prentiss provided brief opening remarks and then moved directly into public comment.  During the comment period, there was significant dialogue between industry attendees and the OIR.  The industry expressed serious concerns about the inclusion of “fees or other expenditures” in the Proposed Rules that are required to be disclosed, but leave significant ambiguity about the scope of the disclosures.  The OIR representatives noted that it is their intent to make certain that the gross offer amount is reconciled completely.  Attendees noted that they understood the terms “gross offer” to include compensation and payment to viator only. 

Industry attendees also expressed concerns over seeming confusion in the Rules as to whether the provider is required to get the disclosure from the viator, the broker or both.  Mr. Prentiss stated that he would take all of the concerns under advisement.  He also stated that he would consult the National Association of Insurance Commissioners (“NAIC”) policy regarding scope of disclosure. 

Following the discussion, Mr. Prentiss stated that the record would remain open for 14 days for additional written comments on the Rule.  Additional comments should be forwarded to Bernie.stoffel@fldfs.com.

 

Viatical Settlement Providers

Mr. Prentiss provided brief opening remarks regarding viatical settlement providers and then moved into public comment.  Again, attendees expressed serious concerns about several of these Proposed Rules and forms because they require disclosure of proprietary information .  Among the concerns was that the Rules go beyond the statutory grant of authority given to the OIR over viatical settlements. 

The OIR representatives stated that they will take those concerns under consideration when they make amendments to the Proposed Rule.  Specific concerns include the detailed disclosure requirements in 690-204.060 relating to Required Supplemental Annual Transaction Detail.  Also, the definition of “secondary market” may be inconsistent with the generally-recognized definition, inasmuch as the Rule views a secondary market as assignment of a viaticated policy rather than a general life policy. 

An issue was also raised regarding 690-204.040 because the provision prohibits a provider from acting as a broker.   Several other concerns were raised regarding specific provisions in the Rules.  The OIR noted that it would consider changing some of them and stated that it would take the comments made at the hearing into consideration. 

These Proposed Rules are expected to undergo significant change before final adoption.  However, the intent of requiring additional, significant disclosures will likely continue to be reflected in possible amended versions.  The record for these Proposed Rules will remain open for 14 days for written comments.  Again, comments should be forwarded to Bernie.stoffel@fldfls.com.

 

Conclusion

At the conclusion of the hearing, industry attendees encouraged the OIR to hold another hearing before sending the Proposed Rules to the Financial Services Commission for final adoption.  Please note, that while the OIR is NOT statutorily required to hold another hearing, it must provide a Notice of Change if it makes material changes to the Proposed Rules. 

 

The above information is intended to be a brief summary of the activities and discussions that took place during today’s two hearings.  It is not intended to be a comprehensive analysis of the issues contained herein.

 

Note:  The NAIC announced today that it has completed an internal investigation of the approval process related to the Viatical Settlements Model Act, concluding that the model was accorded open debate and unbiased consideration and that the adoption of the model act by the NAIC’s Life Insurance and Annuities (A) Committee was unbiased and not subject to undue or improper influence.

To read the remainder of the NAIC press release on the results of an independent review focused specifically on the adoption of the Viatical Settlements Model Act, click here.

 

Should you have any questions or comments, please feel free to contact this office.

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