The District of Columbia may begin regulating the secondary market for life insurance under a bill introduced earlier this month.

The legislation, known as the Viatical Settlements Licensing Act of 2007, is designed to “regulate persons and entities, other than the owners of life insurance policies or certificates” that offer, solicit, negotiate, procure, or put into effect Viatical contracts in the District, according to the bill.

Although the District’s City Council has adjourned for the summer and no hearings are planned on the bill, it has the support of the Life Insurance Settlement Association, Orlando, Fla., which praised the measure as a step forward for the industry and the District.

“This bill is reflective of the District’s growing reputation as one of the nation’s leading financial services regulators,” said Doug Head, LISA executive director. “As secondary market companies continue to be attracted to the region, this landmark legislation will provide the District with the necessary tools to foster competition while protecting consumers.”

The bill would require those wishing to conduct life settlements to obtain a license within 30 days of beginning to act in that capacity, although it would allow anyone certified as an attorney, certified public accountant or financial planner recognized by a national entity to negotiate a viatical agreement on behalf of the viator without obtaining a license.

Additionally, the bill includes a provision saying a life producer, “who has either held such license or had held a resident license in his or her home state for at least one year shall be deemed to meet the licensing requirements of this section and shall be permitted to operate as a viatical settlement broker.”

Licensed life settlement providers would also be required to make disclosures at the time of a transaction, including such as informing the policyholder that there are other options besides selling the policy, that it could affect the policyholder’s eligibility for Medicaid or other government benefits, and that some of the income gained in the transaction may be subject to taxation.

Insurers would be barred from declining to insure a person based on how the policy is paid for under the act, assuming that the financing does not violate other portions of the proposed law, but would be allowed to notify the policyholder of the potential implications of selling the policy. Among the issues an insurer would be allowed to disclose is the concept that a stranger would hold policy after a sale, and that it would affect the policyholder’s future insurability.

The proposed law also bars sales from being arranged up to two years after the policy is issued by an insurer, unless the policyholder can demonstrate that specific, special circumstances exist. The overall intent of the bill is to help eliminate stranger originated life insurance, or STOLI transactions. If passed, the legislation “will directly address STOLI by ensuring that applicants for insurance certify that they have insurable interest, have not pre-arranged a settlement, and have not been improperly induced into renting out their insurance capacity,” said Mr. Head. “And this legislation will protect consumers who borrow against the market value of their policies in order to finance the purchase, by ensuring that they understand the possible detriments to them which can result from achange of ownership in the policy to satisfy the debt.”