BILL ANALYSIS

 

 

                                                                                                                                            S.B. 1323

                                                                                                                                    By: Armbrister

                                                                                                                                             Insurance

                                                                                                       Committee Report (Unamended)

 

 

 

BACKGROUND AND PURPOSE

 

Texas law on viatical settlements has not been updated since 1999 and does not reflect the

current marketplace or level of regulation found across the country.

 

C.S.S.B. 1323 increases consumer protections provided in Chapter 1111, Insurance Code,

regarding the sale of viatical and life settlements in Texas by updating licensing requirements for

viatical brokers, increasing anti- fraud protection, improving privacy protections, and enhancing

the Department of Insurance's ability to regulate minimum levels for viatical settlement values.

 

RULEMAKING AUTHORITY

 

Rulemaking authority previously granted to the commissioner of insurance is modified in

SECTION 4 (Section 1111.003, Insurance Code) of this bill.

 

Rulemaking authority is expressly granted to the commissioner of insurance in SECTION 9

(Section 1111.008, Insurance Code) of this bill.

 

ANALYSIS

 

SECTION 1. Amends Section 111.001, Insurance Code, to define "advertising," "business of

viatical settlements," "chronically ill," "financing entity," "fraudulent viatical settlement act,"

"life insurance agent," "policy," "related provider trust," "special purpose entity," "terminally ill,"

"viatical settlement broker," "viatical settlement provider," "viaticated policy," and "viator."

Deletes the definitions of "life settlement " and "viatical settlement."

 

SECTION 2. Amends Section 111.002, Insurance Code, as follows:

Sec. 1111.002. New heading: PURPOSE; CONSTRUCTION WITH CERTAIN

OTHER LAW.

            (a) Makes modifications to the purpose of this subchapter.

(b) Provides that the department has exclusive jurisdiction in this state to regulate viatical settlements, other than transactions governed by the Securities Act (Article 581-1 et seq., V.T.C.S.) in the regulation of securities.

 

SECTION 3. Amends Subchapter A, Chapter 1111, Insurance Code, by adding Sections

1111.0021, 1111.0022, and 1111.0023, as follows:

 

Sec. 1111.0021. VIATICAL SETTLEMENT CONTRACT DEFINED. Defines "viatical

settlement contract." Provides that the term includes and excludes certain contracts and

agreements.                

 

Sec. 1111.0022. FRAUDULENT INSURANCE ACT. Provides that a fraudulent

viatical settlement act is a fraudulent insurance act for the purposes of Chapter 701

(Insurance Fraud Investigation).

 

Sec. 1111.0023. RELATED PROVIDER TRUST AGREEMENT. Requires a related

provider trust to have a written agreement with the registered viatical settlement provider

under which the registered viatical settlement provider is responsible for ensuring

compliance with all statutory and regulatory requirements and under which the trust

agrees to make all records and files related to viatical settlement transactions available to

the commissioner of insurance (commissioner) as if those records and files were

maintained directly by the registered viatical settlement provider.

 

SECTION 4. Amends Section 1111.003, Insurance Code, as follows:

 

            (a) Authorizes, rather than requires, the commissioner to adopt rules to implement this

            subchapter. Deletes existing text regarding rule adoption relating to life and viatical

            settlements.

            (b) Makes modifications to the guidelines for rules adopted by the commissioner under

            this section.

            (c) Deletes existing text of this subsection. Creates this subsection from text of existing

            Subsection (d). Deletes existing text referring to a life settlement company.

 

SECTION 5. Amends Section 1111.004, Insurance Code, as follows:

 

Sec. 1111.004. New heading: REGISTRATION REQUIREMENTS. (a) Prohibits a

person from negotiating a viatical settlement contract between a viator and one or more

viatical settlement providers unless the person is a viatical settlement broker.

 

            (b) Provides that a life insurance agent is deemed to meet the registration

            requirements of this section and is permitted to operate as a viatical settlement

            broker if the agent meets certain requirements. Deletes existing text of this

            section.                       

 

SECTION 6. Amends Subchapter A, Chapter 1111, Insurance Code, by adding Section

111.0041, as follows:             

 

Sec. 111.0041. EXEMPTIONS. (a) Provides that certain persons are exempt from

Section 1111.004.      

           

            (b) Provides that Section 4001.052 (Solicitor of Application for Insurance

            Considered Agent of Insurance) does not apply to a life insurance agent

            representing a viator.

 

SECTION 7. Amends Section 1111.005, Insurance Code, by amending Subsection (a) and

adding Subsection (d), as follows:

 

            (a) Makes modifications to the list of actions for which the commissioner is authorized

            to suspend or revoke a registration or deny an application for registration.

            (d) Authorizes the commissioner to suspend, revoke, or refuse to renew the registration

            of a viatical settlement broker if the commissioner finds that the viatical settlement

            broker has violated this subchapter.

 

SECTION 8. Amends Section 1111.006, Insurance Code, to make modifications to the list of

certain laws applying to a person engaged in the business of viatical settlements.

 

SECTION 9. Amends Subchapter A, Chapter 1111, Insurance Code, by adding Sections

1111.007, 1111.008, 1111.009, 1111.010, 1111.011, and 1111.012, as follows:

 

Sec. 1111.007. FORMS. (a) Prohibits a person from using a viatical settlement contract

or providing to a viator a disclosure statement form in this state unless filed with and

approved by the commissioner.

 

            (b) Provides that any viatical settlement contract form or disclosure form filed

            with the commissioner is considered approved if the form or disclosure is not

            disapproved by the commissioner on or before the 60th day after the date of the

            filing.

            (c) Requires the commissioner to disapprove a viatical settlement contract form

            or disclosure statement form if, in the commissioner's opinion, the contract or

            provisions contained in the contract are unreasonable, contrary to the interests of

            the public, or otherwise misleading or unfair to the viator.

            (d) Requires a viatical settlement contract and an application for a viatical

            settlement contract, regardless of the form of transmission, to contain a specific

            statement or a substantially similar statement pertaining to knowingly presenting

            false information.

            (e) Provides that the lack of a statement required by Subsection (d) does not

            constitute a defense in any prosecution for a fraudulent viatical settlement act.

 

Sec. 1111.008. REPORTS. (a) Requires each viatical settlement provider to file with

the commissioner by March 1 of each year an annual statement containing information

required by the commissioner by rule.

 

            (b) Provides that information is required by this section only with respect to

            transactions in which the viator is a resident of this state or in which the viatical

            settlement provider is located in this state. Prohibits the commissioner from

            requiring certain information.

 

Sec. 1111.009. DISCLOSURES. (a) Requires a viatical settlement provider or broker to

provide the viator with certain disclosures with each application for a viatical settlement.

not later than the time the application for the viatical settlement contract is signed by all

parties. Requires the disclosures to be provided in a separate document that is signed by

the viator and the viatical settlement provider or broker, and to state and include certain

information.

 

            (b) Requires a viatical settlement provider to provide the viator with certain

            disclosures not later than the date the viatic al settlement contract is signed by all

            parties. Requires the disclosures to be conspicuously displayed in the viatical

            settlement contract or in a separate document signed by the viator and the viatical

            settlement provider or viatical settlement broker and states certain information.

            (c) Requires the provider to communicate a change in ownership or beneficiary to

            the insured on or before the 20th day after the date of the change if the provider

            transfers ownership or changes the beneficiary of the insurance policy.

 

Sec. 1111.010. PROHIBITED ACTS. (a) Prohibits a person from committing a

fraudulent viatical settlement act.

 

            (b) Prohibits a person from knowingly or intentionally interfering with the

            enforcement of this subchapter or investigations of suspected or actual violations

            of this subchapter.

            (c) Prohibits a person in the business of viatical settlements from knowingly or

            intentionally permitting a person convicted of a felony involving dishonesty or

            breach of trust to participate in the business of viatical settlements.

            (d) Provides that it is a violation of this subchapter for any person to enter into a

            viatical settlement contract within a two-year period commencing with the date of

            issuance of the insurance policy or certificate unless the viator certifies to the

            viatical settlement provider that certain conditions have been met within the twoyear

            period.

            (e) Requires copies of the certifications and independent evidence required by

            Subsection (d) to be submitted to the insurer at the time the viatical settlement

            provider submits a request to the insurer for verification of coverage. Requires

            the copies to be accompanied by a letter of attestation from the viatical settlement

            provider that the copies are true and correct copies of the documents received by

            the viatical settlement provider.

 

Sec. 1111.011. TRADE PRACTICES. (a) Requires a viatical settlement provider to pay

an amount greater than the cash surrender value or accelerated death benefit then

available if the policyholder qualifies for an accelerated death benefit.

 

            (b) Provides that regardless of the source of compensation, a viatical settlement

            broker is considered to represent only the viator and owes a fiduciary duty to the

            viator to act according to the viator's instructions and in the viator's best interests.

            (c) Provides that a violation of this subchapter is considered an unfair method of

            competition or an unfair or deceptive act or practice in the business of insurance

            under Chapter 541 (Unfair Methods of Competit ion and Unfair or Deceptive Acts

            or Practices).

 

Sec. 1111.012. TEXAS DEPARTMENT OF INSURANCE INVESTIGATION OF

VIATICAL SETTLEMENT FRAUD. Requires any information or material acquired by

the department that is relevant to suspected viatical settlement fraud to be treated in the

same manner as information or material acquired by the department that is relevant to an

inquiry by the insurance fraud unit under Chapter 701 (Insurance Fraud Investigations)

and the confidentiality, privilege, and public records provisions of that chapter are

required to apply to this information or material.

 

            (b) Provides that the immunity provisions of Chapter 701 apply to a person filing

            reports or furnishing other information concerning suspected, anticipated, or

            completed viatical settlement fraud.

 

SECTION 10. Amends the heading of Chapter 1111, Insurance Code, to read as follows:

CHAPTER 1111. VIATICAL SETTLEMENTS AND ACCELERATED TERM LIFE

INSURANCE BENEFITS

 

SECTION 11. Amends the heading of Subchapter A, Chapter 1111, Insurance Code, to read as

follows:          

 

SUBCHAPTER A. VIATICAL SETTLEMENTS

 

SECTION 12. Requires the commissioner to adopt all rules necessary to implement Chapter

1111, Insurance Code, as amended by this Act, to take effect not later than March 1, 2006.

 

SECTION 13. Effective date: September 1, 2005.

 

EFFECTIVE DATE

 

This Act takes effect September 1, 2005.