Viaticals. A viatical is variously defined as an arrangement in which someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash. After the transaction is completed, the seller (the insured or policy owner) then has cash from the sale (the total amount of which has been discounted from the policy’s face amount) and the new buyer is then the owner of the policy and makes the premium payments for the duration of the policy and then at the insured’s death, that buyer cashes in the full amount (face amount) of the policy and keeps the proceeds.
NAIC Model Act. An understanding of viaticals is best understood within the context of state insurance laws and state securities laws. This is because most all of the laws and regulations relating to viaticals can be found in the Insurance Code and sometimes, within the Securities Code of the particular state in question. Further, as to the state Insurance Code, most state viatical laws are based on a model viatical act as promulgated by the National Association of Insurance Commissioners (NAIC) entitled the Viatical Settlements Model Act. Furthermore, all viatical transactions relate to a life insurance contract.
Regulation of Viaticals is Carried out by the State Department of Insurance. The regulation of viatical transactions in most states is entrusted to that state’s Department of Insurance and most states regulate viatical transactions under their Viatical Settlement Act (or an equivalently named statute). The typical state regulatory arrangement calls for oversight of, and licensing as specified - of among others,
- The business of viatical settlements;
- Viatical settlement providers;
- Viatical settlement contracts;
- Viatical settlement purchaser; and
- Viaticated policies (note: most all of the preceding items are defined within the statute – and any number of other definitions are typically provided as well within the statute).
As suggested, the reason for similarity of viatical regulations among the various states is because most state viatical laws are fashioned after a national model, called the NAIC Viatical Settlements Model Act.
Life Settlements versus Viatical Settlements. Life settlements and viatical settlements are similar in that they both convert life insurance policies into cash, but nonetheless, they are different. It is true that both involve the sale of life insurance policies with the cash upon the sale going to the insured, but the outcomes can be significantly different.
Generally as used in the industry the term “life settlement” relates to the sale of a life insurance policy by a senior citizen while the term “viatical” or “viatical settlement” relates to the sale of a life insurance policy by someone who is dying.
Life Settlement. A life settlement transaction may be used by individuals who have had a change in their personal circumstances such that they want to sell their policy but they are not terminally ill. And typically, life settlements apply to life insurance policies with large face amounts. Although life insurance companies generally allow their policyholders to cash in policies, they often do so at only a fraction of the policy’s face value. On the other hand, Life settlement companies often offer more generous payments.
Viatical Settlement. On the other hand, a viatical settlement transaction occurs when the insured is terminally ill and has a life expectancy that is less than two years. As with this entire discussion here, please note that related regulations can vary from state to state.
Expertise Required as to Viaticals. In sum then, expertise as to viaticals calls upon knowledge of (i) state insurance department operations and their rules and regulations, (ii) the National Association of Insurance Commissioners (NAIC), (iii) state securities regulations and (iv) the life insurance industry.
As to all of these matters, I have significant expertise. I am a former Commissioner of Insurance (Iowa) where I headed up that states Department of Insurance. In addition, I oversaw the regulation of all securities matters within the state, with the Superintendent of Securities reporting directly to me and with the Securities Division located within my Department of insurance. Further, I am a former Member of the National Association of Insurance Commissioners and past Member of the Executive Committee of the NAIC through which all Model Acts (including the Viatical Settlements Model Act) were required to be reviewed and approved. Finally I have significant expertise as to life insurance. In addition I have testified as a viatical expert including viatical expert testimony in federal court.
In any event, I have considerable background as to viatical transactions and the rules and regulations that come to bear on such transactions including licensing obligations. Along these same lines, because all viatical transactions begin with a life insurance contract, my life insurance expertise as set out immediately below is highly relevant to any discussion of viaticals.
As stated above, an understanding of viaticals begins with an understanding of life insurance for the simple reason that all viaticals involved the sale of a life insurance contract owned by an individual with a terminal disease. Set out below in detail is my background as to life insurance and life insurance companies and life insurance contracts.
1. Life Insurance Expertise.
A. Life Insurance Policies. Life Insurance Policy Expertise as an Insurance Regulator. I have had extensive and substantive experience relating directly to life insurance policies including interpreting policy language and determining the insurer’s obligations under such policies. As a regulator for eight years in three positions ((i) Assistant Attorney General assigned to the Department of Insurance (Iowa), (ii) First Deputy Commissioner of Insurance and (iii) Commissioner of Insurance), along with my staff, I approved (or disapproved) of the language of life insurance policies used by each of the 500 life insurance companies doing business in the state. This regulatory action also included the approval of policy application forms. In addition, I regularly served as an Administrative Law Judge (then known as a Hearing Officer) in matters relating directly to life insurance policies.
B. Life Insurance Policy Expertise: NAIC. While Commissioner, I also served as a member of the National Association of Insurance Commissioners (“NAIC”), including membership on its Executive Committee), the nationwide organization of all state insurance commissioners. That organization has responsibilities for establishing model insurance administrative regulations and model statutes for consideration by all of the states. While with the NAIC, I served among others as:
- Chair of the Life Insurance Committee. The charge of this Committee was oversight over all issues relating to life insurance products as well as life insurers, including practices such as applications and policy issuance;
- Chair of the Universal Life Insurance Task Force. The charge of this Committee was oversight over universal life and similar products; and
- Chair of the Life Insurance Product Development Task Force. While Chairman of this Task Force, I led the development of model disclosure statements for universal and indeterminate premium life products designed to assist consumers in their comparison of different types of life insurance products.
C. Life Insurance Policy Expertise: American Academy of Actuaries. Along these same lines, I served as general counsel and chief lobbyist to the American Academy of Actuaries, Washington D.C. The Academy is the national professional association for actuaries. These professionals establish premium levels for policies. In addition, because policy language dictates premium levels, actuaries are also active in determining policy language.
D. Life Insurance Policy Expertise: CEO of a Major U.S. Insurance Entity. After serving as a regulator, I served as President and Chief Executive Officer for the National Council on Compensation Insurance (“NCCI”), New York City, a nationwide industry owned organization with about 1,500 employees with annual revenues of about $150 million that did (and does) business in about 40 states. NCCI was domiciled in Florida and did business throughout the United States.
This means while CEO, NCCI was subject to the full authority of the various state departments of insurance (“DOIs”) and subject as well to each of those state’s Insurance Code as well as the jurisdiction of their state and federal courts.
Among my responsibilities at NCCI was (together with my staff) to formulate all workers compensation insurance policy forms as used in our 40 states of operation. This work included drafting all policy language (tailored to the specific state’s insurance code) as well as drafting all endorsements and all other policy forms. In addition, my responsibilities included gaining state insurance department approval of all such policy forms as a condition precedent to their use as submitted by some 600 insurance companies. Finally, I note that among others, the life insurance benefit under workers compensation is an important coverage. I am very familiar with the meaning and relevance of specific state approval of policy forms, endorsements and applications and related documents and matters.
E. Life Insurance Policy Expertise: Reinsurance Arbitrator. I am also one of about 400+ certified reinsurance arbitrators (by ARIAS-US) and have sat as an arbitrator on life insurance issues in disputes about policy language between reinsurers and their insurers.
2. Claims: Expertise as to Duties of Life Insurance Companies.
A. Expertise as to Duties of Life Insurance Companies as Commissioner of Insurance. I have also had significant experience and responsibility in connection with determining and passing judgment on insurers’ responsibilities as to insurance agents and as to applicants, insureds, owners and beneficiaries such as those involved here. In particular, in my three regulatory positions previously described, I had daily responsibility to assure and to hold accountable all of the state’s 500 life insurers for their related obligations. I did so through a series of action steps and tools. The action steps and tools included the following:
1. NAIC Market Regulation Handbook. As Commissioner, I had as an available tool, the NAIC Market Regulation Handbook (“Examiners Handbook” or “Handbook”).
Among other things, this Handbook sets forth standards to assess life insurer behavior relating to (i) policy application, (ii) policy issuance and (iii) responsibilities relating to their agents. The Handbook also sets forth standards of review as to agent contracts and appointments by insurers of agents. The Handbook is used by every department of insurance in the United States. The standards have been universally agreed to by all of the nation’s Commissioners of Insurance as adopted formally by them through the NAIC. The standards of the Handbook are universally recognized as appropriate standards against which to judge life insurer behavior.
2. Market Conduct Examinations. On a regular basis, my regulatory agency conducted Market Conduct Examinations of life insurers utilizing the Examiners Handbook to determine whether in fact the target insurer was meeting all of their obligations to their insureds and others. This action entailed physically going into the insurers’ application and policy issuance files to determine any errant action or inappropriate policy behavior. As further discussed below, errant insurers were warned, disciplined and prosecuted as required.
3. NAIC Financial Examiners Handbook. As Commissioner, I had available another tool, namely the NAIC Financial Examiners Handbook (“Financial Examiners Handbook”). Among other things, the Financial Examiners Handbook sets forth standards to assess life insurer solvency on a triennial basis. Among other documents reviewed by examiners in reaching financial conclusions are agent contracts and policyholder matters. As with the Market Conduct Examiners Handbook, the Financial Examiners Handbook is used by every department of insurance in the United States. Similarly, these standards have been universally agreed to by all of the nation’s Commissioners of Insurance as adopted formally by them through the NAIC. The standards of the Financial Examiners Handbook are universally recognized as appropriate standards against which to judge life insurer behavior.
4. Financial Examinations. On a regular basis, my Department conducted financial examinations of life insurers utilizing the Financial Examiners Handbook to determine whether in fact the insurer was and was likely to remain solvent. As with market conduct exams, financial examinations entailed physically going into the insurers’ operations and studying, among others, files to (i) assure compliance with agent and policyholder duties and (ii) to assure that financial reporting as to agent and policyholder matters were properly carried out. As further discussed below, errant insurers were warned, disciplined and prosecuted as required.
5. Complaints From the Public. On a daily basis, my Department received incoming consumer complaints as to life insurance company practices. This Consumer Protection Division was staffed by Department lawyers who resolved the individual complaint and also, equally important, those lawyers also determined whether an insurer evidenced unacceptable practices — that is to say, whether the incoming consumer complaints in fact constituted a red flag as to the life insurance company’s potential behavior across the board.
6. Prosecution. To the extent insurer behavior required formal action (whether a result of complaints from the public or a result of Department investigation through a Market Conduct Examination or the Financial Examination), my Department prosecuted such life insurers under the state’s civil Administrative Procedures Act. In connection with such prosecutions, I served in various capacities during my eight years as a regulator, including serving as (i) prosecutor (as Assistant Attorney General), (ii) as the decision maker as to whether to initiate prosecution in the first instance (while First Deputy and Commissioner of Insurance) and (iii) as the Administrative Law Judge (“ALJ”) who presided over the prosecution and entered findings of fact and conclusions of law as to insurer coverage determinations and claim settlement practices. I have served as an ALJ in scores of such cases where the life insurer’s (i) agent, (ii) policy form, (iii) policy application and (iv) overall conduct were the primary issues and I entered final decisions and orders in such matters.
B. Expertise as to Duties of Life Insurance Companies as an Insurance Industry Executive: CEO of a Major US Insurance Organization. I discuss my executive experience at NCCI under this section because in addition to expertise as to policies (discussed above), my experience at NCCI also resulted in expertise as to insurer responsibilities as to applications, policy issuance and their agents.
While I was President and CEO, NCCI was subject to the full range of authority of the various DOIs as discussed above. I am very familiar with the duties of U.S. based insurers relating to their obligations and responsibilities and the regulatory scheme in place in various states as to such matters.
While President and CEO of NCCI, I visited and physically toured and reviewed in excess of 400 insurance companies and gained direct exposure to the procedures and processes and standard industry practices of the U.S. insurance community including the life insurance community in that any number of those insurers had life insurance operations.
C. Expertise as to Duties of Life Insurance Companies: General Counsel to the American Academy of Actuaries.As stated above, I served as General Counsel and Director of Government Relations for the American Academy of Actuaries. I mention it again here in connection with insurer agent and policy obligations because Academy members included affiliation with virtually every life insurance company in America. Among other things, such actuaries had duties relating to policy language and policy pricing. The Academy’s Board of Directors was likewise made up of leading insurance company executives from such life insurance companies.
D. Expertise as to Duties of Life Insurance Companies: Attorney in Private Practice Iowa. As an attorney in private practice, I represented a number of agent and insurer interests and became familiar with applicable life industry standards of practice, including insurer responsibilities toward their agents. Those interests also included intimate involvement with insurance forms such as those at issue here, as counsel to the (i) Professional Insurance Agents of Iowa and (ii) the Iowa Association of Life Underwriters (life, health and annuity insurance agents).
3. Expertise as to Insurance Agents.
A. Expertise as to Insurance Agents as a Regulator: Licensure. I have had extensive and substantive experience relating directly to the duty of care that comes to bear on insurance agents and agencies in their various relationships with life insurance companies. As an Assistant Attorney General (see above), I have prosecuted life insurance agents for violations relating to their duty of care. As an insurance regulator (see above), along with my staff, I have screened hundreds of thousands of agents for character and background (separate and apart from subject matter testing). As to subject matter, I have formulated agent-licensing exams in the first instance. Upon passage of the exam, I have licensed hundreds of thousands of insurance agents.
B. Expertise as to Insurance Agents as a Regulator: Prosecution and CE. I have had full responsibility for continuing education for licensed life insurance agents (approving CE courses in the first instance for acceptable content; overseeing the administration of such courses and granting and denying credit for such courses). I have initiated agent revocation actions and prosecuted those actions to completion. .
C. Expertise as to Insurance Agents as a Regulator: ALJ. I have sat as the Administrative Law Judge in such actions and entered findings of facts and conclusions of law in scores of cases in which agents were prosecuted for violations relating to standards of care in connection with life insurance matters and I have had direct responsibility for the appointment process by life insurance companies (some 500 life insurance companies) of all of their life agents. I have supervised as well the ongoing relationship of all life insurance companies in the state with all of their appointed agents.
D. Expertise as to Insurance Agents: Legal Representation. As a lawyer, I have defended life insurance agents and brokers against allegations (in administrative law forums) of violations of their duty of care.
E. Expertise as to Insurance Agents: Industry CEO. As President and Chief Executive Officer of a major Florida domiciled entity (NCCI) doing business in some 40 states, I have had substantial working relationships with the U.S. insurance agent and agency community.
Contact Bill Hager at 561-306-5072 or via email to discuss your case.