In the 2005 Georgia General Assembly, the Legislature enacted a Life Settlements Act, which was modeled on the NAIC Viatical Settlements Model that was then in existence. Subsequent to passage of that law, the Department of Insurance began to regulate and to license life settlement providers. Now, midway through the 2008 legislative session, a new bill has been introduced which will comprehensively rewrite and update Georgia law regulating life settlements.
Senate Bill 499, which was introduced by Senate Insurance and Labor Chairman, Ralph Hudgens (R-NE Georgia), has the full support of Insurance Commissioner John Oxendine and the staff of the Department of Insurance. The bill makes a number of key changes to existing law. Most notably, the bill:
- Defines for the first time a “life settlement financing transaction,” which is used in connection with the purchase of a settled life insurance policy.
- Prohibits entering into a practice or plan that involves “Stranger Originated Life Insurance,” which is the first time this industry buzzword has been used in the Georgia statute.
- Requires disclosure to the issuing insurer when the prospective insured has undergone a life expectancy evaluation by a person unaffiliated with the issuing insurer.
- Makes it improper for any party to solicit an application for a life insurance policy by any scheme that is intended to avoid Georgia’s insurable interest laws.
- Makes it improper to misrepresent the policy owner’s state of residence to avoid the policy or life settlement transaction from being subject to Georgia law.
- Establishes a new registration requirement for life settlement brokers, which are defined as any person who represents a policy owner for a fee or commission in the negotiation of a life settlement transaction between the policy owner and one or more life settlement providers. The bill makes it clear a life settlement broker must represent only the policy owner and that this function can also be undertaken by a resident or a non-resident life insurance producer that is already licensed under Chapter 23 of the Insurance Code.
- Substitutes the definition “provider” for the old definition of “life settlement provider,” which is any person or entity who arranges life settlement contracts.
- References the individual who enters into a life settlement agreement as the policy “owner” rather than the policy “seller.”
- Requires a provider to submit an antifraud plan with several significant new disclosures and filing requirements.
- Requires licensed life settlement providers to satisfy a minimum net worth requirement, to be determined by the Commissioner.
- Changes the licensure renewal date for providers from March of each year to May.
- Subjects life settlement brokers to a new continuing education requirement involving 15 hours of training on a biennial basis (note that life insurance producers complying with the continuing education requirements under Chapter 23 of the Insurance Code are not subject to this separate requirement).
- Clarifies that disciplinary proceedings and other administrative hearings conducted in accordance with Chapter 59 of the Insurance Code will be handled according to the Insurance Department’s Administrative Procedures (Chapter 2 of the Insurance Code) as opposed to the more general Georgia Administrative Procedures Act (Title 50).
- Requires an annual financial statement filing, which details the provider’s life settlement activity for the prior year, along with aggregate data on all life settlement policies in force for that provider (note that some, but not all, of these disclosures are currently required under Chapter 93 of the Department of Insurance Regulations).
- Substantially increases penalties for failure to respond to written inquiries from the Department of Insurance.
- Clarifies that non-public personal information obtained in connection with life settlement contracts is subject to the Gramm-Leach-Bliley Act.
- Changes the record retention requirement from the current five-year period to a period of three years after the death of the insured party.
- Changes the Commissioner’s examination authority to eliminate reliance on the National Association of Insurance Commissioners Examiner’s Handbook and may also limit an examined party’s right to challenge an examination report or obtain an administrative hearing.
- Deletes a comprehensive life settlement advertising chapter and replaces it with much shorter and simpler advertising guidelines.
- Changes the potential rescission period to a uniform 15 days after execution of the life settlement contract.
- Enhances some of the written disclosures that must be made to the insured party regarding changes that may occur as a result of the life settlement contract.
- Enhances the disclosures on offers, acceptances and rejections concerning a proposed life settlement contract and also requires a reconciliation of the provider’s bid to the net proceeds received by the policy owner so that subtractions, commissions and fees can be accurately traced.
- Clarifies that insurers are within their rights to ask if the applicant or insured has entered into a financing transaction or prearranged a future sale of ownership of the life insurance policy.
- Retains the requirement that life settlement funds must be transferred to the owner within three business days after the life settlement transaction closes or the entire transaction may be voided.
- Limits the ability to enter into a life settlement transaction at time of application or issuance or within the first 24 months following issuance unless the owner can demonstrate that he or she is chronically ill, recently divorced, widowed, retired or meets certain other conditions.
- Clarifies how jurisdiction is determined when there is more than one owner or when the resident state of the provider and owner differ.
- Allows the Commissioner to pursue violators of the Chapter with a charge of insurance fraud, which carries a penalty of a felony conviction and a prison term of two to 10 years or a fine of $10,000 (or both), or to impose an administrative penalty of up to $1,000 for each violation or $5,000 if the violation is willful.
- States that Chapter violations are considered Unfair Trade Practices Act under any state law, not just the Insurance Unfair Trade Practices Act (see further comments below).
The Bill was introduced on February 21, 2008 and passed the Georgia Senate by a vote of 52-0 on March 5, 2008. As of March 12, the Georgia General Assembly had reached day 30 of its constitutionally limited 40 business-day schedule. Therefore, the House of Representatives will need to take up and pass SB499 within the next ten legislative days in order for the law to become effective.
Most of the provisions of the Bill appear to be attempts to update and clarify the regulatory provisions contained in the original 2005 law. However, there are concerns about the fact that the newly written examination law may limit or restrict the ability of the examined party to request a hearing to dispute a written examination report and may in fact authorize the Commissioner and Department of Insurance to issue a written report notwithstanding any objection or opposition by the examined party. See proposed O.C.G.A. § 33-59-7(f). There may also be a concern about the fact that this new code section, unlike other provisions of the Insurance Code, could be cross-referenced not only to the Georgia’s Insurance Unfair Trade Practices Act (Chapter 6 of the Insurance Code), but also potentially to Georgia’s general business Fair Business Trade Practices Act (commonly referred to as the “Mini-FTC Act”), which is contained in Title 10 of the Georgia Code. See proposed O.C.G.A. § 33-59-17. It is unclear whether these potential concerns will be addressed in any House committee version under consideration. It is interesting to note that since Georgia began regulating the life settlement industry in the fall of 2005, it has thus far reviewed approximately 30 applications and issued 20 licenses in this industry. It appears that the licensure of those active in the life settlement industry has become one of the more significant regulatory functions (and some might argue regulatory burdens) of Georgia’s insurance regulatory structure.
We will continue to monitor SB 499 as it moves through the Legislature and report on its ultimate outcome in a subsequent newsletter update.
Joe Cregan is a partner in the firm’s insurance group. He specializes in the areas of insurance regulation, mergers and acquisitions of insurers, insurance company financial matters and general administrative law. Joe received his bachelor’s degree from Youngstown State University, his master’s degree from Kent State University and his law degree from Georgia State University.