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California Agency Backpedals On Settlement Requisites

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The California Department of Insurance (CDI) has revised its proposed emergency regulations regulating life settlement providers in the state to make them less onerous to life settlement industry.

Among other changes, the revised rules state that audited financial statements submitted by life settlement providers to the CDI shall be held in confidence. The earlier version of the rules would have opened that information to scrutiny by the public, a fact that members of the settlement industry objected to.

The CDI’s rule revision comes after a bill advanced in the state Assembly that would have required the state to keep settlement brokers’ financial information confidential. The bill was approved unanimously by the Assembly Committee on Insurance. After the CDI backtracked on its rule proposal, however, SB 1242 was referred to the Assembly’s Committee on Appropriations, in effect killing the measure.

That effectively put the CDI back in charge of administering the state’s life settlement law, SB 98, which was enacted last year.

Some members of the Senate deemed the rules the CDI originally proposed to implement SB 98 “strayed from the language” of that law, says Ken Cooley, principal consultant to the state Senate Banking, Finance and Insurance Committee, which introduced SB 1242.

The regulations were revised to address some of the concerns of firms in the settlement industry, acknowledges a spokesman for the CDI.

Three different versions of SB 98 had been before the legislature and been vetoed once by Gov. Arnold Schwarzenegger before it was finally enacted in October Only two “no” votes were cast against the measure.

SB 98 establishes licensing requirements for life settlement brokers and providers in California. Among other provisions, it sets uniform conditions for every life settlement transaction and mandates a number of consumer disclosures.

For instance, it requires written disclosure to a policy owner of the gross purchase price, including commissions and fees before a contract is settled; the amount to be paid to the owner; and the amount paid to the owner’s broker.

Legislators advanced SB 1242 because they disagreed with some of the emergency rules originally advanced by the CID to implement SB 98. [The rules were issued on an emergency basis to permit settlement firms to continue operating in the state until the rules received final approval.]

The revised regulations “are more in line with what the law requires,” says Cooley.

SB 1242 was introduced “to focus attention on a dispute about what SB 98 intended,” he added.

The new regulations adopted by the CDI still will be subject to review by the state’s Office on Administrative Law, Cooley observes.

Among other changes, the revised CID rules dropped a requirement for providers to disclose to the individual selling a policy what amount will be paid to a producer who referred the seller to a broker.

A requirement for providers to advise sellers of the total purchase price and the share paid to the broker remains in the revised regulations.

The new rules also include a stipulation that annual financial statements submitted by providers to the CID are to be treated as confidential by the agency. The rule specifically exempts such documents from the California Public Records Act (CPRA).

That act mandates that agencies disclose governmental records to members of the public on request. It allows some exceptions for personal information and certain kinds of records, including where “the public interest served by not making the record public clearly outweighs the public interest served by disclosure of the record,” according to a 2004 analysis of the CPRA by the California Attorney General.

The CPRA does allow an agency to withhold certain information for which the agency has promised confidentiality as well as personal financial information disclosed by an applicant to apply for a license, according to the analysis.

Among other provisions, SB 98 requires a life insurance company to send a written notice of life settlement as an option to an owner of policy owner who is considering terminating a policy.

It also bans stranger-originated life insurance transactions, where financial backers pay seniors cash incentives to buy life insurance policies with the intention to sell the policies to investors.


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