REPORT TITLE:



DESCRIPTION:


 
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HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO INSURANCE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The primary purpose of this measure is to
 
 2 protect consumers who are faced with catastrophic or terminal
 
 3 illness and seek to finance medical or hospice care through
 
 4 leveraging their assets in life insurance policies or group life
 
 5 insurance certificates.  This measure:
 
 6      (1)  Prohibits the use of viatical settlement agreements in
 
 7           the state; and
 
 8      (2)  Regulates the offering and application of accelerated
 
 9           death benefits provisions in both individual and group
 
10           life insurance contracts.
 
11      This measure is not intended to effect or interfere in any
 
12 way with the enforcement of chapter 485, Hawaii Revised Statutes,
 
13 or any rules adopted pursuant to chapter 485 by the commissioner
 
14 of securities.
 
15      SECTION 2.  Part one of article one of chapter 431, Hawaii
 
16 Revised Statutes, is amended to add a new section to be
 
17 appropriately designated and to read as follows:
 
18      "§431:1-1__.  Viatical settlement agreements prohibited.  No
 
19 person shall enter into a viatical settlement agreement in the
 

 
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 1 state.  For the purposes of this section a "viatical settlement
 
 2 agreement" means:
 
 3      (1)  An agreement, which establishes the terms under which
 
 4           one person agrees to pay compensation or give anything
 
 5           of value in return for the other person's assignment,
 
 6           transfer, sale, devise, or bequest of an interest in
 
 7           the death benefit or ownership of all or a portion of
 
 8           an insurance policy or certificate of insurance to a
 
 9           person, other than the insurer who originally issued
 
10           the policy or certificate, where the compensation or
 
11           value is less than the expected death benefit of the
 
12           insurance policy or certificate; or
 
13      (2)  A contract for a loan or other financial transaction
 
14           secured primarily by an individual or group life
 
15           insurance policy, other than a loan by a life insurance
 
16           company pursuant to the terms of the life insurance
 
17           contract, or a loan secured by the cash value of a
 
18           policy."
 
19      SECTION 3.  Chapter 431, Hawaii Revised Statutes, is amended
 
20 by adding to article 10D a new part to be appropriately
 
21 designated and to read as follows:
 
22                  "PART   .  ACCELERATED BENEFITS
 
23      §431:10D-A  Purpose.  The purpose of this part is to
 

 
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 1 regulate accelerated benefit provisions of individual and group
 
 2 life insurance policies and to provide required standards of
 
 3 disclosure.  This part shall apply to all accelerated benefits
 
 4 provisions of individual and group life insurance policies,
 
 5 except those subject to part V of article 10A, which are issued
 
 6 or delivered in this State, on or after the effective date of
 
 7 this part.
 
 8      §431:10D-B  Definitions.  For the purpose of this part:
 
 9      "Accelerated benefits" covered under this part are benefits
 
10 payable under a life insurance contract:
 
11      (1)  To a policyowner or certificate holder, during the
 
12           lifetime of the insured, in anticipation of death or
 
13           upon the occurrence of specified life threatening or
 
14           catastrophic conditions as defined by the policy or
 
15           rider;
 
16      (2)  That reduce the death benefit otherwise payable under
 
17           the life insurance contract; and
 
18      (3)  That are payable upon the occurrence of a single
 
19           qualifying event that results in the payment of a
 
20           benefit amount fixed at the time of acceleration.
 
21      "Qualifying event" means one or more of the following:
 
22      (1)  A medical condition that would result in a drastically
 
23           limited life span as specified in the contract;
 

 
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 1      (2)  A medical condition that has required or requires
 
 2           extraordinary medical intervention, such as, but not
 
 3           limited to, a major organ transplant or continuous
 
 4           artificial life support, without which the insured
 
 5           would die;
 
 6      (3)  A condition that usually requires continuous
 
 7           confinement in an eligible institution, as defined in
 
 8           the contract, if the insured is expected to remain
 
 9           there for the rest of the insured's life;
 
10      (4)  A medical condition that would, in the absence of
 
11           extensive or extraordinary medical treatment, result in
 
12           a drastically limited life span.  Such conditions may
 
13           include, but are not limited to, one or more of the
 
14           following:
 
15           (A)  Coronary artery disease resulting in an acute
 
16                infarction or requiring surgery;
 
17           (B)  Permanent neurological deficit resulting from
 
18                cerebral vascular accident;
 
19           (C)  End stage renal failure;
 
20           (D)  Acquired immune deficiency syndrome; or
 
21           (E)  Other medical conditions that the commissioner
 
22                shall approve for any particular filing;
 
23           or
 

 
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 1      (5)  Other qualifying events that the commissioner shall
 
 2           approve for a particular filing.
 
 3      §431:10D-C  Accelerated benefits are subject to this part.
 
 4 Accelerated benefit riders and life insurance policies with
 
 5 accelerated benefit provisions shall be deemed mortality risks
 
 6 and shall be subject to regulation under this article.
 
 7      §431:10D-D  Assignee or beneficiary concurrence required.
 
 8 Prior to the payment of the accelerated benefit, the insurer
 
 9 shall obtain from an assignee or irrevocable beneficiary a signed
 
10 acknowledgement of concurrence for payout, except where the
 
11 insurer making the accelerated benefit is itself the assignee
 
12 under the policy.
 
13      §431:10D-E  Lump sum settlement option required.  Contract
 
14 payment options shall include the option to take the benefit as a
 
15 lump sum.  The benefit shall not be made available as an annuity
 
16 contingent upon the life of the insured.
 
17      §431:10D-F  Restrictions on use of proceeds.  No
 
18 restrictions shall be imposed upon the use of the proceeds of an
 
19 accelerated benefits settlement.
 
20      §431:10D-G  Accidental death benefit provision.  If any
 
21 death benefits remain after payment of an accelerated benefit,
 
22 the accidental death benefit provision, if any, in the policy or
 
23 rider shall not be affected by the payment of the accelerated
 

 
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 1 benefit.
 
 2      §431:10D-H  Required terminology.  The terminology
 
 3 "accelerated benefit" shall be included in the descriptive title
 
 4 of products regulated under this part.  Products regulated under
 
 5 this part shall not be described or marketed as long-term care
 
 6 insurance or as providing long-term care benefits.
 
 7      §431:10D-I  Disclosure of tax consequences.  A disclosure
 
 8 statement shall be presented to the policyowner or certificate
 
 9 holder at the time of application for the policy or rider and at
 
10 the time the accelerated benefit payment request is submitted
 
11 that receipt of these accelerated benefits may be taxable and
 
12 that assistance should be sought from a personal tax advisor.
 
13 The disclosure statement shall be prominently displayed on the
 
14 first page of the policy or rider and any other related
 
15 documents.
 
16      §431:10D-J  Required disclosure at time of solicitation.
 
17 (a)  A written disclosure including, but not necessarily limited
 
18 to, a brief description of the accelerated benefit and
 
19 definitions of the conditions or occurrences triggering payment
 
20 of the benefits shall be given to the applicant prior to
 
21 application for a policy which includes a provision for
 
22 accelerated death benefits.  The description shall include an
 
23 explanation of any effect of the payment of a benefit on the
 

 
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 1 policy's cash value, accumulation account, death benefit,
 
 2 premium, policy loans, and policy liens, provided that:
 
 3      (1)  In the case of agent solicited insurance, the agent
 
 4           shall provide the disclosure form to the applicant
 
 5           prior to or concurrently with the application for
 
 6           accelerated benefits.  Acknowledgment of the disclosure
 
 7           shall be signed by the applicant and writing agent;
 
 8      (2)  In the case of a solicitation by direct response
 
 9           methods, the insurer shall provide the disclosure form
 
10           to the applicant at the time the policy is delivered,
 
11           with a notice that a full premium refund shall be
 
12           received if the policy is returned to the company
 
13           within the thirty-day free look period; and
 
14      (3)  In the case of group insurance policies, the disclosure
 
15           form shall be contained as part of the certificate of
 
16           coverage or any related document furnished by the
 
17           insurer for the certificate holder.
 
18      (b)  If there is a premium or cost of insurance charge, the
 
19 insurer shall give the applicant a generic illustration
 
20 numerically demonstrating any effect of the payment of a benefit
 
21 on the policy's cash value, accumulation account, death benefit,
 
22 premium, policy loans, and policy liens, provided that:
 
23      (1)  In the case of agent solicited insurance, the agent
 

 
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 1           shall provide the illustration to the applicant prior
 
 2           to or concurrently with the application;
 
 3      (2)  In the case of a solicitation by direct response
 
 4           methods, the insurer shall provide the illustration to
 
 5           the applicant at the time the policy is delivered; and
 
 6      (3)  In the case of group insurance policies, the disclosure
 
 7           form shall be contained as part of the certificate of
 
 8           coverage or any related document furnished by the
 
 9           insurer for the certificate holder.
 
10      §431:10D-K  Disclosure of premium charge.  (a)  An insurer
 
11 with financing options other than as described in section
 
12 431:10D-J(a)(2) and (3) shall disclose to the policyowner or
 
13 certificate holder any premium or cost of insurance charge for
 
14 the accelerated benefit.  The insurer shall make a reasonable
 
15 effort to assure that the policyowner or certificate holder is
 
16 aware of any additional premium or cost of insurance charge if
 
17 the policyowner or certificate holder is required to pay a
 
18 charge.
 
19      (b)  An insurer shall furnish an actuarial demonstration to
 
20 the commissioner when filing the product disclosing the method of
 
21 arriving at its cost for the accelerated benefit.
 
22      §431:10D-L  Disclosure of administrative expense charge.
 
23 The insurer shall disclose to the policyowner or certificate
 

 
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 1 holder any administrative expense charge.  The insurer shall make
 
 2 a reasonable effort to assure that the policyowner or certificate
 
 3 holder is aware of any administrative expense charge if the
 
 4 policyowner or certificate holder is required to pay the charge.   
 
 5      §431:10D-M  Disclosure of effect of the accelerated death
 
 6 benefit payment.(a)  When a policyowner or certificate holder
 
 7 requests an acceleration, the insurer shall send a statement to
 
 8 the policyowner or certificate holder and irrevocable beneficiary
 
 9 showing any effect that the payment of the accelerated benefit
 
10 will have on the policy's cash value, accumulation account, death
 
11 benefit, premium, policy loans, and policy liens.
 
12      (b)  The statement shall disclose that receipt of
 
13 accelerated benefit payments may adversely affect the recipient's
 
14 eligibility for Medicaid or other government benefits or
 
15 entitlements.  In addition, receipt of an accelerated benefit
 
16 payment may be taxable and assistance should be sought from a
 
17 personal tax advisor.
 
18      (c)  When a previous disclosure statement becomes invalid as
 
19 a result of an acceleration of the death benefit, the insurer
 
20 shall send a revised disclosure statement to the policyowner or
 
21 certificate holder and irrevocable beneficiary.
 
22      (d)  When the insurer agrees to accelerate death benefits,
 
23 the insurer shall issue an amended schedule page to the
 

 
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 1 policyholder or notify the certificate holder under a group
 
 2 policy to reflect any new, reduced in-force face amount of the
 
 3 contract.
 
 4      §431:10D-N  Effective date of the accelerated benefits.  The
 
 5 accelerated benefit provision shall be effective for accidents on
 
 6 the effective date of the policy or rider.  The accelerated
 
 7 benefit provision shall be effective for illness no more than
 
 8 thirty days following the effective date of the policy or rider.
 
 9      §431:10D-O  Waiver of premiums.  The insurer may offer a
 
10 waiver of premium for the accelerated benefit provision in the
 
11 absence of a regular waiver of premium provision being in effect.
 
12 At the time the benefit is claimed, the insurer shall explain any
 
13 continuing premium requirement to keep the policy in force.
 
14      §431:10D-P  Unfair discrimination prohibited.  An insurer
 
15 shall not unfairly discriminate among insureds with differing
 
16 qualifying events covered under the policy or among insureds with
 
17 similar qualifying events covered under the policy.  An insurer
 
18 shall not apply further conditions on the payment of the
 
19 accelerated benefits other than those conditions specified in the
 
20 policy or rider.
 
21      §431:10D-Q  Actuarial standards.  (a)  In financing
 
22 accelerated death benefits, an insurer may:
 
23      (1)  Require a premium charge or cost of insurance charge
 

 
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 1           for the accelerated benefit, which shall be based on
 
 2           sound actuarial principles.  In the case of group
 
 3           insurance, the additional cost may also be reflected in
 
 4           the experience rating;
 
 5      (2)  Pay a present value of the face amount, the calculation
 
 6           of which shall be based on any applicable actuarial
 
 7           discount appropriate to the policy design.  The
 
 8           interest rate or interest rate methodology used in the
 
 9           calculation shall be based on sound actuarial
 
10           principles and disclosed in the contract or actuarial
 
11           memorandum.  The maximum interest rate used shall be no
 
12           greater than the greater of:
 
13           (A)  The current yield on ninety-day treasury bills; or
 
14           (B)  The current maximum statutory adjustable policy
 
15                loan interest rate; or
 
16      (3)  Accrue an interest charge on the amount of the
 
17           accelerated benefits.  The interest rate or interest
 
18           rate methodology used in the calculation shall be based
 
19           on sound actuarial principles and disclosed in the
 
20           contract or actuarial memorandum.  The maximum interest
 
21           rate used shall be no greater than the greater of:
 
22           (A)  The current yield on ninety-day treasury bills; or
 
23           (B)  The current maximum statutory adjustable policy
 

 
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 1                loan interest rate.
 
 2           The interest rate accrued on the portion of the lien
 
 3           that is equal in amount to the cash value of the
 
 4           contract at the time of the benefit acceleration shall
 
 5           be no more than the policy loan interest rate stated in
 
 6           the contract.
 
 7      (b)  When an accelerated benefit is payable, the insurer
 
 8 shall:
 
 9      (1)  Reduce the cash value of the policy by no more than a
 
10           pro rata reduction based on the percentage of death
 
11           benefits accelerated to produce the accelerated benefit
 
12           payment; or
 
13      (2)  Charge the payment of accelerated benefits, any
 
14           administrative expense charges, any future premiums,
 
15           and any accrued interest as a lien against the death
 
16           benefit of the policy or rider and the access to the
 
17           cash value may be restricted to any excess of the cash
 
18           value over the sum of any other outstanding loans and
 
19           the lien.  Future access to additional policy loans
 
20           could also be limited to any excess of the cash value
 
21           over the sum of the lien and any other outstanding
 
22           policy loans.
 
23      (c)  When payment of an accelerated benefit results in a pro
 

 
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 1 rata reduction in the cash value, the payment may not be applied
 
 2 toward repaying an amount greater than a pro rata portion of any
 
 3 outstanding policy loans.
 
 4      §431:10D-R  Actuarial disclosures.  (a)  A qualified actuary
 
 5 shall describe the accelerated benefits, the risks, the expected
 
 6 costs, and the calculation of statutory reserves in an actuarial
 
 7 memorandum accompanying each state filing.
 
 8      (b)  The insurer shall maintain in its files descriptions of
 
 9 the bases and procedures used to calculate benefits payable under
 
10 these provisions.
 
11      (c)  These descriptions shall be made available for
 
12 examination by the commissioner upon request.
 
13      §431:10D-S  Reserves.  (a)  When benefits are provided
 
14 through the acceleration of benefits under group or individual
 
15 life policies or riders to such policies, policy reserves shall
 
16 be determined in accordance with section 431:5-307.
 
17      (b)  All valuation assumptions used in constructing the
 
18 reserves shall be determined as appropriate for statutory
 
19 valuation purposes by a member in good standing of the American
 
20 Academy of Actuaries.
 
21      (c)  Mortality tables and interest currently recognized for
 
22 life insurance reserves by the National Association of Insurance
 
23 Commissioners may be used as well as appropriate assumptions for
 

 
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 1 the other provisions incorporated in the policy form.  The
 
 2 actuary shall follow both actuarial standards and certification
 
 3 for good and sufficient reserves. Reserves in the aggregate
 
 4 should be sufficient to cover:
 
 5      (1)  Policies upon which no claim has yet arisen; and
 
 6      (2)  Policies upon which an accelerated claim has arisen.
 
 7      (d)  For policies and certificates that provide actuarially
 
 8 equivalent benefits, no additional reserves need to be
 
 9 established.
 
10      (e)  Policy liens and policy loans, including accrued
 
11 interest, represent assets of the company for statutory reporting
 
12 purposes.  For a policy on which the policy lien exceeds the
 
13 policy's statutory reserve liability, the excess shall be held as
 
14 a non-admitted asset."
 
15      §431:10D-T  Authority to adopt rules.  (a)  The commissioner
 
16 shall have the authority to adopt rules implementing this part."
 
17      SECTION 4.  In codifying the new sections in the new part
 
18 added to article 10D of chapter 431, Hawaii Revised Statutes, by
 
19 section 3 of this Act, the revisor of statutes shall substitute
 
20 appropriate section numbers for the letters in the designations
 
21 of those new sections in this Act.
 
22      SECTION 5.  This Act shall take effect upon its approval.
 
23 
 
24                           INTRODUCED BY:  _______________________
 

 
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