Ontario’s proposal would open life insurance to the secondary market

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“The bill has a lot of support – more than a lot of people imagine,” said Rudy Cuzzetto, the Progressive Conservative member of the provincial parliament (MPP) sponsoring Bill 219: Life Settlements and Loans Act, 2020. “During Covid-19, more than ever, our seniors would need to access these funds.

Proposed Bill 219 would amend the Ontario Insurance Act’s prohibition against the “trafficking or exchange” of life insurance policies so that the prohibition does not apply to policies that are “sold or assigned by the original policyholder or an assignee, used as collateral or given to charity.”

The bill provides that a policy must be held for 24 months by the owner before it can be sold. The Financial Services Regulatory Authority of Ontario (ARSF) would oversee the life settlement industry.

In October, Bill 219 passed second reading and was referred to the Standing Committee on Finance and Economic Affairs. Three other PC MPs, including the Chief Government Whip, voted in favor of the bill, while three NDP MPs voted against. However, as with all private members’ bills, the chances of the bill becoming law remain high.

A 2017 attempt to introduce lifetime regulations in Ontario, led by then-Liberal Party MP Michael Colle, failed. Quebec is the only province to allow life settlement transactions. (New Brunswick, Nova Scotia, and Saskatchewan allowed life insurance policies to be traded, but New Brunswick amended its insurance law to ban trading in 2019, and Nova Scotia did did in 2020. The Saskatchewan Insurance Act contains a section prohibiting trading which is not yet in force. Require.)

“[Bill 219] does not come from government decision-makers, ”said Susan Murray, vice-president of government relations and policy at the Canadian Life and Health Insurance Association Inc. (ACCAP) in Ottawa. “This is a unique private member’s bill.

ACCAP argues that allowing lifetime settlements will leave older people, especially those facing economic hardship or in poor health, vulnerable to financial abuse. “It’s not a very pleasant market to consider,” Murray said.

In a life settlement transaction, an insured sells their life insurance policy through a broker or directly to a finance company. This usually happens if the person needs the money, can no longer pay the premiums, or no longer wants the policy. The finance company will offer a price that could be a multiple of the cash value of the policy, but less than the death benefit. After the sale, the finance company continues to pay the policy premiums until the death of the insured, at which time the company receives the death benefit.

In determining the price of the offer, the finance company will take into account the insured’s age and health to determine the life expectancy – generally, a shorter life expectancy means a longer supply. high. The company will incorporate a “rate of return” that it seeks to achieve. The broker earns a commission based on the price paid for the policy.

Longtime advocates, led by a small but noisy group of life insurance agents, believe life insurance regulations give seniors the ability to convert a policy that might otherwise be abandoned into needed cash. Settlement-life markets exist in the US, UK, Japan and other countries, advocates argue, and older people should have the right to sell their policy if they choose. “You should have a choice … [the policy] is your asset, ”Cuzzetto said.

The insurance industry argues that Bill 219 would allow bad actors to target the elderly. “[Seniors] can sell a policy two years before death at a fraction of the [death benefit], and then their beneficiaries have nothing two years later, ”Murray said.

A document sent to Ontario MPPs in January by ACCAP regarding Bill 219 argues that insurers are already offering policyholders “safe, regulated and viable” options for accessing cash, including asking for cash. living benefits under a policy, taking a policy loan or reducing the value of a policy. face value to make premiums more affordable.

“Typically you buy insurance for your successors, children and family after you die – that’s certainly what the insurance is for,” Murray said. Life establishment advocates want to tap into a potentially lucrative market in Ontario, she suggested, and “that’s why [this initiative] keeps coming back.

Byren Innes, Managing Director and Executive Consultant at Jennings Consulting Ltd. in Toronto, generally supports the authorization of life settlement transactions if they are properly regulated. And supporters of Bill 219 argue that the global pandemic has made their case stronger. “This is a better time to come up with this than in the past,” said Innes.

Innes suggested that opposition from insurers is motivated in part by self-interest. If a secondary market were allowed, fewer life insurance policies would expire – since life insurance settlements would pay premiums on policies they bought – and insurers would have to pay a death benefit. on more fonts. When a policy expires, insurers pay nothing.

Insurers set premiums on existing policies assuming a fixed percentage expires because there is no secondary market, Innes said. If a life settlement business were licensed, insurance companies would likely have to increase their premiums. “You could argue that this is not good for consumers in the long run,” Innes said.

Nonetheless, said Innes, having the ability to sell a policy in a secondary market would be “beneficial” to policyholders. There are many reasons people buy insurance, including for business purposes, and many reasons people no longer need their policies. “So why can’t they take life insurance as property and sell it?” ” He asked.

However, Innes would like to see more stringent guarantees than those proposed in Bill 219, including a 30-day cooling off period (instead of 10 days) and the requirement that any proposed life settlement transaction agreement be reviewed. by a lawyer.

“Many transactions require independent legal advice,” said Innes. ” I do not know why [life settlement transactions] couldn’t be one of them.

Harold Geller, an attorney for MBC Law Professional Corp. in Ottawa, which represents investors and policyholders, said enabling lifetime settlement transactions “may work for a few consumers and a lot of sellers.”

Bill 219 does not adequately address the potential for abuse, said Geller, who is a member of FSRA’s consumer advisory committee.

Settlement-life transactions place brokers in a potential conflict of interest similar to that faced by investment advisers who advise clients on whether to convert to a defined benefit pension plan, Geller said.

While a 10-day cooling-off period is welcome, “it’s not really a protection against a conflict of interest that promises to [the broker] unforeseen riches, ”Geller said. “We would need very strict regulations and professionalism to [Bill 219] be in the interests of the consumer, and so far these features are not part of this proposal. “

Geller argues that life-settlement transactions would be less of a point of debate if insurers didn’t sell policies to clients that were inappropriate or didn’t need them in the first place. “What you are dealing with is the mis-selling, at the root,” he said.

The gift of insurance policies and Bill 219

The provision in Bill 219: Life Settlements and Loans Act, 2020, which expressly authorizes the donation of life insurance policies in Ontario, could create problems, suggested Susan Manwaring, a partner at Miller Thomson LLP in Toronto.

Currently, the Insurance Act of Ontario does not expressly recognize charities as beneficiaries of insurance policies. However, the Financial Services Regulatory Authority of Ontario considers charities to be eligible for life insurance and has authorized such donations.

Gift of life policies to charities became a topic of discussion last year, when the British Columbia Financial Services Authority (BCFSA) appeared to challenge some types of these transactions. A subsequent bulletin issued by this regulator confirmed that charities can solicit and accept such donations – but uncertainty remained as to which transactions the BCFSA would deem out of the game.

Ontario MPP Rudy Cuzzetto, the sponsor of Bill 219, wrote in an email to Investment Director (IE) that “it is not necessary to repeat anything [uncertainty] in Ontario; Bill 219, if passed, would remove any ambiguity and clearly authorize charitable donations of life insurance policies.

In a subsequent email to THAT IS TO SAY, Manwaring wrote that clear legislation regarding donating life insurance would help. However, “there are structures that use insurance donations in a way that some find problematic. A direct exemption [as proposed in Bill 219] could create other problems.


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