STAND. COM. REP. NO. 580-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 2477
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Consumer Protection and Commerce, to which
was referred H.B. No. 2477 entitled: 

     "A BILL FOR AN ACT RELATING TO INSURANCE,"

begs leave to report as follows:

     The purpose of this measure is to:

     (1)  Prohibit the viadication of life insurance policies or
          certificates in the State; and

     (2)  Provide a legal framework for the regulation of
          accelerated death benefits under life insurance
          contracts or certificates.

     Your Committee received testimony supporting this bill from
the Department of Commerce and Consumer Affairs (DCCA).  The
Hawaii State Association of Life Underwriters (HSALU) and State
Farm Insurance (State Farm) submitted testimony requesting that
the bill be amended to allow regulated viatical settlement
agreements.

     Your Committee heard testimony from DCCA that under a
viatical settlement contract, the owner of a life insurance
policy assigns the death benefit under the policy to a viatical
service provider (provider).  In return for the right to collect
the full amount of the life insurance death benefit upon the
owner's death, the provider pays the owner cash in an agreed
amount that is less than the total policy death benefit, and also

 
 
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agrees to pay all remaining premiums until the death of the
owner.  DCCA testified that the bill's prohibition of viatical
settlement contracts was based on the concern that authorizing
viatical settlements would institutionalize in state law, an
activity that essentially gambles on the death of the insured,
and gives providers a financial interest in the insured's early
death.  DCCA also testified that accelerated death benefit
policies eliminate the provider middleman, and thus, provide more
money to the insured.

     Your Committee heard competing testimony from State Farm
that prohibiting viatical settlements would do a disservice to
seriously ill individuals and those in dire circumstances,
because it would take away the option to enter into legitimate
agreements that could help pay for medical care or other debts.
HSALU testified similarly, and also stated that a viatical
settlement can be a useful option for persons either facing tough
financial choices or for whom a life insurance policy no longer
makes financial sense, because the settlement allows these
persons to receive a greater amount of money than they would
otherwise receive if they surrendered the policy, or let the
policy lapse.  Both State Farm and HSALU urged that the Committee
adopt the National Association of Insurance Commissioner's model
act, that would protect persons who choose to enter into viatical
agreements, rather than prohibit the agreements altogether.

     Upon consideration of the issues raised in this bill, your
Committee finds that further discussion is merited.  Accordingly,
your Committee has

     (1)  Deleted the provision prohibiting viatical settlement
          agreements;

     (2)  Incorporated the National Conference of Insurance
          Legislators' Viatical Settlements Model Act of July 11,
          1997, into this bill to facilitate discussion;

     (3)  Provided for licensing fees for viatical settlement
          providers;

     (4)  Replaced the effective date of this measure with a
          blank; and

     (5)  Made technical, nonsubstantive amendments for purposes
          of clarity, consistency, and style.

     As affirmed by the record of votes of the members of your
Committee on Consumer Protection and Commerce that is attached to
this report, your Committee is in accord with the intent and

 
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                                 Page 3

 
purpose of H.B. No. 2477, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
2477, H.D. 1, and be placed on the calendar for Third Reading.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Consumer
                                   Protection and Commerce,



                                   ______________________________
                                   RON MENOR, Chair