STAND. COM. REP. NO. 2745

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2818
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred S.B. No. 2818 entitled: 

     "A BILL FOR AN ACT RELATING TO INSURANCE,"

begs leave to report as follows:

     The purpose of this measure is to protect consumers with
life-threatening illnesses who leverage their assets in life
insurance policies or group life insurance certificates in order
to finance medical or hospice care.

     Testimony on the measure was submitted by the Insurance
Commissioner, State Farm Insurance Companies, American Council of
Life Insurers, First Hawaiian Insurance, Inc., Viatical
Association of America, and the Hawaii State Association of
Insurance and Financial Advisors. 

     Under a viatical settlement contract, the owner of a life
insurance policy (viator) sells the policy to a third party who
pays the policyholder a sum less than the value of the policy,
assumes payment of all future premiums, and collects the policy
benefits upon the death of the insured.  Alternatively, many
insurers offer policyholders accelerated death benefit riders to
their policies that pay benefits in advance of death and upon a
qualifying event.  

     Viatical settlements and accelerated death benefit riders
present the potential for abuse because seriously ill persons in
need of funds to pay for medical care may be more vulnerable to

 
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predatory practices.  Therefore, this measure would prohibit the
viadication of life insurance policies and certificates and
regulate the offering of accelerated death benefits under a life
insurance policy or certificate. 

     Your Committee finds, however, that viatical settlements may
be utilized for purposes other than to finance the medical care
of a seriously ill person.  For instance, retiring business
executives insured under "key man" policies who no longer need
the coverage, may choose to sell the policy under a viatical
settlement and use the proceeds to purchase long-term care
insurance or to purchase insurance policies for estate planning
purposes.  Viatical settlements may also enable individuals to
meet unexpected or immediate financial needs or to make gifts to
charity.  Therefore, your Committee finds that it is not in the
public interest to outlaw all viatical settlements.

     Your Committee further finds that the National Association
of Insurance Commissioners (NAIC) has proposed model legislation
for the regulation of viatical settlements.  Upon careful
consideration, your Committee has amended this measure by
replacing its contents with language that is substantially
derived from the NAIC Viatical Settlements Model Act, but
prohibits viadication of policies held on persons with
catastrophic or life threatening illnesses, or who have a life
expectancies of less than twenty-four months.  This measure, as
amended:

     (1)  Requires viatical settlement providers,
          representatives, and brokers to be licensed by the
          insurance commissioner;

     (2)  Requires licensees to make certain disclosures to
          viators and obtain prior approval of viatical
          settlement contracts and disclosure statements;

     (3)  Establishes reporting and confidentiality requirements;

     (4)  Grants the insurance commissioner the authority to
          examine licensees;

     (5)  Requires the express consent of a viator to a contract;

     (6)  Allows viators to rescind a contract;

     (7)  Establishes procedures governing viatical settlement
          payments;


 
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     (8)  Prohibits certain practices in viatical settlement
          transactions;

     (9)  Establishes advertising standards; and

    (10)  Deems violations of the Act an unfair trade practice.

     Your Committee finds that this measure, as amended, protects
those individuals most at risk for abuse in viatical settlement
transactions, while allowing consumers the option of using
viatical settlements as a method of financing.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 2818, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as S.B.
No. 2818, S.D. 1, and be placed on the calendar for Third
Reading.

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



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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