The Business Council SUPPORTS the aforementioned legislation that amends the insurance law, in relation to the licensure of life settlement brokers; the penal law, in relation to life settlement fraud; the banking law, in relation to premium finance agreements; and repeals article 78 of the insurance law relating to viatical settlements.
This bill is New York Insurance Department Departmental Bill #139 and is patterned after the Life Settlements Model Act of the National Conference of Insurance Legislators (NCOIL).
Currently, the life settlement business in New York is an unregulated market permitting life settlement providers to operate without licensure, registration and disclosure requirements. Due to New York's unregulated market, the life settlement business has grown exponentially and in certain cases to the detriment of the life insurance industry and its consumers. According to a report by Life Policy Dynamics LLC, New York accounted for 25 percent of the life settlement cases in 2008.
Life settlements are financial transactions that occur when a policyholder sells a life insurance policy to a life settlement provider for more than the surrender value but less than the death benefit. Typically, policyholders agree to a sensible life settlement transaction because of financial limitations that create a need for immediate cash. In some cases the life settlement provider resells the policy to a third-party investor which could pose privacy concerns due to an unregulated market in New York. This legislation would require the registration of life settlement providers and restricts transfer of ownership to qualified individuals. In addition, it would protect a policyholders' confidential information.
New York's unregulated life settlement industry has resulted in cases of fraud and abuse. One example of the abuses in the life settlement industry is stranger-originated life insurance (STOLI), a process in which a policy is purchased by third party investors for a senior citizen under the guise of “free” life insurance for a period of time in exchange for completing a policy application and premium loan note. Upon the expiration of the “free” life insurance period, the senior citizen is typically unable to repay the loan and thus forced to surrender the policy leaving them unable to purchase another life insurance policy.
The bill includes a provision entitled Stranger Originated Life Insurance (known as STOLI) that prohibits life settlement providers (who purchase the life insurance policies from the original policy owners), life settlement brokers (who broker the life settlement transaction between the original owner of the policy and the life settlement provider) or their representatives from engaging in any activity that would facilitate the issuance of a policy for the intended benefit of a person who has no insurable interest in the life of the person insured under the policy. The concept of insurable interest has long been affirmed in case law and codified in statute pertaining to life insurance in order to prevent the moral hazards that arise with speculation on human life.
The bill provides a comprehensive regulatory framework for the life settlement business including: licensure, disclosure reports, clear compensation guidelines, educational requirements, examinations, defines comprehensive consumer protections and prohibits STOLI transactions for a person with no insurable interest.
For these reasons, The Business Council SUPPORTS the enactment of A.7131-A (Morelle) / S.3655-A (Breslin).