INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Viatical Settlements

Proposed New Rules: N.J.A.C. 11:4-35

Authorized By: Karen L. Suter, Commissioner, Department of Banking and Insurance.

Authority: N.J.S.A. 17:1-8.1, 17:1-1-15c and 17B:30A-1 et. seq.

Proposal Number: PRN 2001- 3.

Submit comments by February 15, 2001 to:

Karen Garfing, Assistant Commissioner
Regulatory Affairs
Department of Banking and Insurance
20 West State Street
PO Box 325
Trenton, NJ 08625-0325

Fax: (609)292-0896

Email: legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

These proposed new rules implement the provisions of N.J.S.A. 17B:30A-1 et seq. concerning life insurance viatical settlements approved September 17, 1999. N.J.S.A. 17B:30A-1 et seq., establishes the procedures by which persons may become licensed as viatical settlement providers, viatical settlement brokers or viatical settlement representatives in this State.

Viatical settlements involve the purchase of life insurance policies from the terminally ill for less than face value. These proposed new rules, which contain valuable protections for insureds who decide to viaticate a life insurance policy, are based to a large extent on the Viatical Settlements Model Regulation adopted by the National Association of Insurance Commissioners ("NAIC"), as amended, 1999. Detailed licensing provisions relating to viatical settlement providers, viatical settlement brokers and viatical settlement representatives have been added.

No persons may engage in the viatical settlement business in New Jersey unless they are licensed as a viatical settlement provider, viatical settlement broker or viatical settlement representative in this State. This subchapter sets forth the requirements and procedures for obtaining viatical settlement licenses including completing and filing the appropriate application and, for an individual viatical settlement brokerís license and representativeís license, passing Part 1 of the State licensing examination, "Life Ė General Product Knowledge," that applicants for life insurance producer licenses must take. This examination requirement may be waived with regard to nonresidents who are licensed in states with substantially similar viatical settlement licensing standards.

Applicants for viatical settlement provider, viatical settlement broker and viatical settlement representative licenses will be required to pay application fees and renewal fees in the amounts prescribed by this subchapter. Viatical settlement provider licensees will be required to deposit $100,000 with the Commissioner to satisfy the financial accountability requirement of N.J.S.A. 17B:30A-9d.

These proposed new rules include the following provisions:

N.J.A.C. 11:4-35.1 sets forth the purpose and scope of the new subchapter.

N.J.A.C. 11:4-35.2 contains definitions of words and terms used throughout the subchapter.

N.J.A.C. 11:4-35.3 sets forth general licensing information including reference to the statutory license term of one year in subsection (c) and the examination requirement for viatical settlement brokers and viatical settlement representatives in subsection (d).

N.J.A.C. 11:4-35.4 details the license application requirements for viatical settlement providers.

N.J.A.C. 11:4-35.5(a) sets forth the license application requirements for individual viatical settlement brokers and viatical settlement representatives. License application requirements for an applicant that is a corporation, partnership, firm or association and is seeking a viatical settlement brokerís license are set out at subsection (b).

N.J.A.C. 11:4-35.6 sets forth the requirements relating to license renewal.

N.J.A.C. 11:4-35.7 contains the requirements relating to license denial including the right of the license applicant to request a hearing.

N.J.A.C. 11:4-35.8 sets forth the requirements for appointment of viatical settlement representatives by viatical settlement providers and brokers.

N.J.A.C. 11:4-35.9 sets forth the requirement that contracts and disclosure statements be approved by the Commissioner; and provides for right of recission.

N.J.A.C. 11:4-35.10 sets forth standards for evaluation of reasonable payments to viators.

N.J.A.C. 11:4-35.11 sets forth the requirements for annual reports to be prepared and filed on or before March 1 of each year by viatical settlement providers.

N.J.A.C. 11:4-35.12 contains requirements regarding the payment of proceeds.

N.J.A.C. 11:4-35.13 governs viatical settlements provider/broker/representative conduct.

N.J.A.C. 11:4-35.14 provides requirements for viatical settlements

N.J.A.C. 11:4-35.15 governs advertising standards.

N.J.A.C. 11:4-35.16 addresses disclosure requirements in connection with viatical settlement contracts, including confidentiality.

N.J.A.C. 11:4-35.17 lists prohibited practices in viatical settlement transactions.

N.J.A.C. 11:4-35.18 sets forth the procedures for the imposition of administrative penalties/suspension/revocation of license including the opportunity to request a hearing.

Social Impact

These proposed new rules establish the procedures to be employed by persons who seek to become licensed as viatical settlement providers, viatical settlement brokers and viatical settlement representatives and also impose a standard of conduct to which these licensees must conform.

By establishing license application and examination requirements and a standard of conduct for persons engaged in the business of viatical settlements, the Department seeks to safeguard the interests of the public by licensing only persons who are trustworthy and competent to act in such capacity in this State.

Economic Impact

These proposed new rules will have an economic impact on the Department because of the increased costs involved in implementing and overseeing such a program. Additional costs will be incurred in the following ways: revising the Departmentís data processing system to develop all necessary forms required for this program, including, but not limited to, license application, examination and renewal forms; tracking and processing information on viatical settlement license applicants as well as on licensees; reviewing, processing and conducting investigations where necessary on applications; conducting investigations into complaints or appeals received by the Department regarding licensees; and generally attending to legal matters related to this new area of law.

Viatical settlement license applicants will incur expenses in the form of application, examination and processing fees. The cost of these fees are as follows an application fee $1,000; license fee of $75.00; an application processing fee of $20.00; and a fingerprint processing fee of $49.00. Additionally, viatical settlement providers will also be required to deposit securities valued at $100,000 with the Commissioner in satisfaction of a financial accountability requirement. These costs are reasonable and necessary to defray the costs associated with the implementation of the Act and the fees and financial accountability deposit are authorized by the Act. Viatical settlement license applicants may incur additional cost in order to comply with the maintaining of records and reporting requirements of these rules. These cost will vary from applicant to applicant depending on the resources they have available.

Viators or insureds may realize an economic benefit from the standards of conduct imposed by this subchapter, particularly the standards for evaluation of reasonable payments set forth at N.J.A.C. 11:4-35.10 including recognition of the fact that in a given case, it may be more beneficial for the insured to obtain payment pursuant to an accelerated death benefit provision. General provision stated at N.J.A.C. 11:4-35.12 and prohibited practices stated at N.J.A.C. 11:4-35.14 provide viators with a degree of protection that will inevitably inure to their economic advantage.

Federal Standards Statement

A Federal standards analysis is not required because proposed new rules not subject to any Federal requirements or standards.

Jobs Impact

The Department anticipates that these proposed new rules will not result in the generation or loss of jobs in this State, but invites commenters to submit any data or studies concerning the jobs impact of the proposed new rules together with written comments on other aspects of the proposal.

Agriculture Industry Impact

The proposed new rules will have no impact on the agriculture industry.

Regulatory Flexibility Analysis

Most viatical settlement licensees or license applicants affected by these rules are likely to be "small businesses" as defined in the Regulatory Flexibility Act at N.J.S.A. 52:14B-17.

These rules set forth reporting, recordkeeping and other compliance requirements and establish responsibilities applicable to viatical settlement providers, viatical settlement brokers and viatical settlement representatives regardless of business size. All viatical settlement licensees will be subject to license application filing requirements and license renewals. Additionally, pursuant to N.J.A.C. 11:4-35.11, viatical settlement providers will be required to keep a detailed record of each viatical settlement transaction to be included in an annual report filed with the Commissioner on or before March 1 of each year for the previous calendar year. Viatical settlement providers are required to submit the following: admission application; copy of its charter or articles of incorporation; currently in force by laws; audited annual financial statements; statements of ownership; employment or deferred compensation agreements; and biographical affidavits. Additionally, they must provide a schedule listing all jurisdictions from which the applicant has withdrawn; a corporate plan of operation; escrow or trust accounts; and a certificate of good standing from the state of domicile.

These requirements may generate extra expenses for viatical settlement licensees as discussed in the Economic Impact above. For example, there may be additional cost for an actuary unless one is already on staff the licensee may have to hire one or contract with one. The recordkeeping requirements of these rules are authorized by N.J.S.A. 17B:30A-1 et seq. for those who wish to conduct business as viatical settlement licensees. However, these requirements merely impose standards that should be used by a reasonably prudent person who is engaged in a licensed, regulated business. These costs are offset by the overriding need to establish uniform standards to ensure the good character and conduct of persons acting as viatical settlement licensees in this State in accordance with the provisions of the Act. In order to provide for uniform and consistent applicability of these rules as well as to ensure the competence and trustworthiness of licensees, and thereby protect the interest of those with whom they contract, these rules must be uniformly and consistently applied. Therefore, no differential treatment has been accorded small businesses by these rules.

Full text of the proposed new rules follows:

SUBCHAPTER 35 VIATICAL SETTLEMENTS

11:4-35.1 Purpose and scope

(a) The purpose of this subchapter is to implement N.J.S.A. 17B:30A-1 et seq. governing viatical settlements.

    1. This subchapter applies to persons who enter into agreements with New Jersey residents to purchase their life insurance policies for less than the current death benefit.

11:4-35.2 Definitions

The following words and terms, as used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

"Act" means an Act concerning life insurance viatical settlements approved September 17, 1999, N.J.S.A. 17B:30A-1 et seq.

"Commissioner," unless otherwise stated, means the Commissioner of the Department of Banking and Insurance.

"Department" means the Department of Banking and Insurance.

"Financing entity" means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a viatical settlement provider, credit enhancer, or any person who may be a party to a viatical settlement contract and who has a direct ownership in a policy or certificate that is the subject of a viatical settlement contract but whose sole activity related to the transaction is providing funds to effect the viatical settlement and who has an agreement in writing with a licensed viatical settlement provider to act as a participant in a financing transaction.

"Financing transaction" means a transaction in which a licensed viatical settlement provider or a financing entity obtains financing for viatical settlement contracts, viaticated policies or interests therein including, without limitation, any secured or unsecured financing, any securitization transaction or any securities offering either registered or exempt form registration under Federal and State securities law, or any direct purchase of interests in a certificate, if the financing transaction complies with Federal and State securities law.

"Insured" means the person covered under the policy being considered for viatication.

"Life expectancy" means the number of months the individual insured under the life insurance policy to be viaticated can be expected to live as determined by the viatical settlement provider considering medical records and appropriate experiential data.

"Net death benefit" means the amount of the life insurance policy or certificate to be viaticated less any outstanding debts or liens.

"Patient identifying information" means an insuredís address, telephone number, facsimile number, electronic mail address, photograph or likeness, employer, employment status, social security number, or any other information that is likely to lead to the identification of the insured.

"Person" means any individual, corporation, organization, firm, association, partnership or other legal entity.

"Resident (of New Jersey)" means a person who either resides in New Jersey or maintains an office in New Jersey where business is transacted.

"Terminally ill" means having an illness or sickness that can reasonably be expected to result in death in 24 months or less.

"Viatical settlement broker" means a person who on behalf of a viator and for a fee, commission or other valuable consideration, offers or attempts to negotiate viatical settlement contracts between a viator and one or more viatical settlement providers. Irrespective of the manner in which the viatical settlement broker is compensated, a viatical settlement broker is deemed to represent only the viator and owes a fiduciary duty to the viator to act according to the viator's instructions and in the best interest of the viator. The term does not include an attorney, accountant or financial planner retained to represent the viator whose compensation is paid directly by or at the direction of the viator.

"Viatical settlement contract" means a written agreement entered into between a viatical settlement provider and a viator. The agreement shall establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance. A viatical settlement contract also includes a contract for a loan or other financial transaction secured primarily by an individual or group life insurance policy, other than a loan by a life insurer pursuant to the terms of the life insurance contract, or a loan secured by the cash value of a policy.

"Viatical settlement provider" means a person, other than a viator, who enters into a viatical settlement contract. Viatical settlement provider also means a person who obtains financing from a financing entity for the purchase, acquisition, transfer or other assignment of one or more viatical settlement contracts, viaticated policies or interests therein, or otherwise sells, assigns, transfers, pledges, hypothecates or otherwise disposes of one or more viatical settlement contracts, viaticated policies or interests therein. Viatical settlement provider does not include:

1. A bank, savings bank, savings and loan association, credit union or other licensed lending institution that takes an assignment of a life insurance policy as collateral for a loan;

2. The issuer of a life insurance policy providing accelerated benefits pursuant to N.J.A.C.11:4-30 and pursuant to the policy; or

3. A natural person who enters into no more than one agreement in a calendar year for the transfer of life insurance policies for any value less than the expected death benefit.

"Viatical settlement representative" means a person who is an authorized agent of a licensed viatical settlement provider or viatical settlement broker, as applicable, who acts or aids in any manner in the solicitation of a viatical settlement. Viatical settlement representative shall not include:

1. An attorney, an accountant, a financial planner or any person exercising a power of attorney granted by a viator; or

2. Any person who is retained to represent a viator and whose compensation is paid by or at the direction of the viator, regardless of whether the viatical settlement is consummated.

A viatical settlement representative shall represent only the viatical settlement provider or viatical settlement broker.

"Viaticated policy" means a life insurance policy or certificate that has been acquired by a viatical settlement provider pursuant to a viatical settlement contract.

"Viator" means the owner of a life insurance policy or a certificate holder under a group policy insuring the life of an individual, who has a catastrophic, life-threatening or chronic illness or condition and who enters or seeks to enter into a viatical settlement contract.

11:4-35.3 General licensing requirements

(a) The Commissioner may issue or renew a viatical settlement providerís license, a viatical settlement brokerís license, or a viatical settlement representativeís license to any person who complies with the requirements of N.J.S.A. 17B:30A-2 and this subchapter.

(b) A viatical settlement license issued by the Commissioner shall be valid for a term of one year with a commencement date of July 1 and an expiration date of June 30 of the succeeding year as indicated on the license. The license shall be a limited license that allows the licensee to operate only within the scope of the license.

(c) Individual applicants seeking licensure as viatical settlement brokers or viatical settlement representatives shall be required to pass Part 1 of the State licensing examination, "Life Ė General Product Knowledge," that is required of life insurance producers before a license may be issued. Applicants also wishing to become licensed as life insurance producers shall, in addition, be required to pass the law part of the examination. The examination requirements shall be waived with regard to non-residents who are licensed in states with substantially similar viatical settlement licensing standards.

(d) The Department may request that licensed viatical settlement brokers and viatical settlement representatives and license applicants submit their social security numbers to the Department. All such requests shall either include or be accompanied by a notice stating:

    1. The purpose or purposes for which the Department intends to use the social security numbers;

2. That disclosure made pursuant to the request that it is either voluntary or mandatory; and

    1. That the request is authorized by this section and by such other law as may be applicable.

(e) All licenses shall at all times be the property of the State of New Jersey and upon any suspension, revocation, nonrenewal, expiration or other termination shall no longer be in force and effect.

    1. Upon any suspension, revocation or other termination of a license, the licensee or any other person having custody of the license shall immediately deliver it to the Commissioner by personal delivery or by registered or certified mail.
    2. If a license is lost, stolen or destroyed, the Commissioner may accept in lieu of the return of the license, an affidavit of the licensee or other person responsible for the license, setting forth the facts that prevent the return of the license.
    3. Failure to pay any requested fee for any reason including, but not limited to, a check being dishonored, shall render a license null and void.

4. A license that is voluntarily cancelled by a licensee may be reinstated for the balance of the license term upon written request of the licensee and payment of the processing fee.

(f) Nothing in this section shall be construed to permit a person to engage in the viatical settlement business without a valid license.

11:4-35.4 Viatical settlement providerís license application

    1. A first time applicant for a viatical settlement providerís license shall submit the following:

1. An Admission Application including the payment of a nonrefundable application fee of $1,000 by check or money order made payable to State of New Jersey Ė General Treasury;

    1. A copy of its charter or articles of incorporation as currently in force, certified by the lawful custodian of the original document;
    2. A copy of its bylaws as currently in force, certified by a senior officer of the corporation;
    3. Six copies of the current audited annual financial statements including all supplemental exhibits and holding company organizational chart;

5. If assets include insurance policies, a valuation of those policies certified by an actuary who is a member of the American Academy of Actuaries or the Society of Actuaries;

6. For foreign corporations, completed and executed forms:

i. Appointing the Commissioner as attorney for service of process; and

    1. Irrevocably consenting to the jurisdiction of the Commissioner and the New Jersey courts;

7. For publicly traded corporations, any Federal and/or State securities filings made within the past year;

  1. A statement of ownership of the applicant which shall include all shareholders of record who control five percent or more of the outstanding shares of the applicant, directly or indirectly;
  2. A copy of any agreements by which the right to conduct or influence any of the affairs of the applicant is transferred to others;
  3. Any employment or deferred compensation agreements in which any officer, director or shareholder who controls five percent or more of the outstanding shares of the applicant, directly or indirectly, participates;

11. Any tender offer materials (advertisements, invitations etc.), if any tender offer has been made by the corporation or its parent to acquire another company within the prior three years preceding;

    1. Biographical affidavits, to be completed by all directors, senior officers and any shareholder of record who controls five percent or more of the outstanding shares of the corporation, directly or indirectly;
    2. A schedule listing the following:

    1. All jurisdictions from which the applicant has withdrawn during the prior 10 years and the reasons for withdrawal; and
    2. All administrative, civil or criminal actions, orders, proceedings and determinations thereof to which the applicant, or its affiliates, or any of its directors, principal officers and/or any shareholder of record who controls five percent or more of the outstanding shares of the corporation, directly or indirectly, have been subject in any jurisdiction during the prior 10 years. If an insurance or viatical license has been refused, suspended or revoked by any jurisdiction, the applicant shall furnish an explanation and a copy of any orders, proceedings, and determinations related thereto;

14. A corporate plan of operation consisting of a description of the applicantís present business plan(s) for conducting viatical business, including, but not limited to:

i. States in which business will be conducted;

ii. Marketing methods shall describe how the applicant advertises and markets its business in general. The plan of operation shall describe how the applicant contacts and communicates with individuals/viators, and explain how marketing representatives and other individuals who have direct contact with clients/viators are recruited, trained and compensated;

iii. Submission of a copy of all advertising or solicitation materials that the applicant uses or plans to use to attract potential viators, or to otherwise market, promote or publicize its business or services;

iv. Materials provided to viator shall explain in detail what information is provided to the viator and by whom concerning the following subjects (attach and describe any related written material provided to the viator not already attached in response to previous sections of this application.):

(1) The catastrophic or life-threatening nature of the viatorís illness;

    1. (2) The viatical settlement contract;
    2. (3) The benefits of the viatorís life insurance policy; and

(4) The release of medical records;

v. An explanation of the applicantís procedures for keeping all medical information confidential. The applicant shall attach and describe form letters, form medical releases, or other formatted written material used for this purpose;

vi. Financing strategy, including a description of controls in place to ensure that the strategy is followed;

vii. Any criteria or limitation on size and quantity of policies shall be explained. For example, is there a limit on the aggregate limit on one life? If so, what is the limit? Is there a cap on total exposures on all lives? If so, what is the cap?

viii. Details of the providerís procedures for detecting and investigating possible fraudulent acts and/or material inconsistencies related to the viatical transaction and the insurance policy to be viated;

ix. A description of the applicantís proposed plan for conducting a viatical business in this State (if it differs from(a)14i though viii above);

x. A summary of arrangements with insurers to transfer risk, indicating the name of the insurers, retentions, maximum risks, types of business, types of agreements;

xi. Copies of all management, exclusive agency, administrative services, or any other operating contracts with insurers and affiliates of applicant, where applicable, signed by the parties and certified to by the viatical providerís secretary and chief operating officer;

15. Identity of the financial institution where an escrow or trust account will be established pursuant to N.J.S.A. 17B:8d and identity of the independent trustee or agent; and

16. A certificate of good standing from the state of domicile and from the New Jersey Secretary of State.

(b) The application and applicable fees shall be sent to:

Viatical Settlement Provider Licensing

New Jersey Department of Banking and Insurance

20 West State Street

P.O. Box 325

Trenton, NJ 08625-0325

(c) Upon approval by the Commissioner of an application for a viatical settlement providerís license, and before issuance of the license, the applicant shall deposit with the Commissioner securities, as defined at and pursuant to the provisions of N.J.S.A.17B:18-37 and 38 and N.J.A.C.11:2-32, having a market value of $100,000, in satisfaction of the financial accountability requirement set forth at N.J.S.A. 17B:30A-9d.

11:4-35.5 Viatical settlement brokerís or representativeís license application

(a) A first time applicant for an individual viatical settlement brokerís license or viatical settlement representativeís license shall submit the following:

1. A properly executed and dated application requesting issuance of a viatical settlement brokerís or representativeís license which shall contain the applicantís legal name; trade name, if any; home address; date of birth; business mailing address and location address; home and business telephone numbers; the applicantís social security number; and responses to questions concerning the applicantís character and fitness for licensing. This information together with all requested attachments shall be certified as being accurate by the applicant;

    1. Proof that the applicant has passed Part 1 of the State licensing examination, "Life Ė General Product Knowledge," required for a life producer;

3. Information on other related licenses held by the applicant including a list of states where the applicant is licensed as a viatical settlement broker or representative, certifications of current license status in those states, and a list of viatical settlement providers with which the applicant is associated;

4. Any documents or statements required to verify or explain responses to questions concerning the applicantís character, fitness or financial responsibility;

5. Fingerprint impressions taken on New Jersey State Police and Federal Bureau of Investigation fingerprint cards, together with the fees required for processing;

6. A plan of operation that includes the following: target markets and geographic locations; marketing and advertising strategies to attract potential viators; broker training procedures and a detailed description of the procedures used to keep medical information confidential;

7. Any additional information which the applicant chooses to provide or which the Commissioner may find relevant to clarify any of the information in (a)1 through 6 above; and

8. A check or money order made payable to State of New Jersey General Treasury for the following nonrefundable fees:

i. License fee: $75.00.

ii. Application processing fee: $20.00.

iii. Fingerprint processing fee: $49.00.

(b) A first time applicant for a viatical settlement brokerís license which is a corporation, partnership, firm or association shall submit the following:

1. A properly executed and dated application requesting issuance of a viatical settlement brokerís license that shall contain the applicantís legal name; trade name, if any; business mailing address and location address; business telephone number; State tax identification number; and all requested attachments, all of which shall be certified as being accurate;

2. A resident New Jersey corporation, partnership, firm or association shall file with the Commissioner a copy of its Certificate of Incorporation or the partnership or association documents, stamped "filed" by the Office of the Secretary of State, County Clerk or other applicable authority, confirming that the business name has been properly recorded;

3. A foreign corporation, partnership or association applying for a resident license to open an office in New Jersey shall file with the Commissioner a certificate filed by the Office of the Secretary of State authorizing the applicant to transact business in New Jersey;

4. Information on other related licenses held by the applicant including a list of states where the applicant is licensed as a viatical settlement broker, certifications of current license status in those states, and a list of viatical settlement providers with which the applicant is associated;

    1. Fingerprint impressions taken on New Jersey State Police and Federal Bureau of Investigation fingerprint cards, together with the fees required for processing for each officer, partner, director and individual owner of five percent or more of the company.
    2. A plan of operation that includes the following: target markets and geographic locations; marketing and advertising strategies to attract potential viators; broker training procedures and a detailed description of the procedures used to keep medical information confidential;

7. Any additional information which the applicant chooses to provide or which the Commissioner may find relevant to clarify any of the information in (b)1 through 6 above; and

8. A check or money order made payable to State of New Jersey Ė General Treasury for the following nonrefundable fees:

i. License fee: $75.00.

ii. Application processing fee: $20.00.

    1. Fingerprint processing fee: $49.00 per person.

(c) The license application and applicable fees for viatical settlement brokers and viatical settlement representatives shall be sent to:

Attention: Viatical Settlements Licensing

License Processing Unit

New Jersey Department of Banking and Insurance

20 West State Street

PO Box 327

Trenton, NJ 08625

11:4-35.6 License renewals

(a) The following shall apply to license renewal:

1. Where a current licensee seeks to renew a license, the licensee shall, at least 15 days before June 30, submit a properly completed renewal application signed, dated and certified to be correct by the licensee or a licensed officer, partner or member of a licensed organization. The licensee shall certify that he, she or it continues to be qualified in accordance with the Act and this subchapter. The renewal application shall be accompanied by a check or money order made payable to State of New Jersey Ė General Treasury for the following nonrefundable fees:

i. Providerís license renewal fee: $250.00.

ii. Brokerís or representativeís license renewal fee: $75.00.

2. A providerís license renewal fee shall be accompanied by a current copy of a letter of good standing obtained from the filing officer of the applicantís state of domicile.

3. Failure to submit the renewal application for receipt by the Department by the date of expiration of the license shall be deemed to establish that the license expired on the date shown on the license and that the licensee was not thereafter authorized to engage in any activities for which the license is required.

4. Any licensee who does not desire renewal shall notify the Department by submitting the renewal application marked "Do Not Renew."

5. An application for renewal may be submitted within three months of the date of the expiration of the license.

6. If a viatical settlement provider has, at the time of renewal, viatical settlements where the insured has not died, it shall do one of the following:

i. Renew or maintain its current license status until the earlier of the following events:

(1) The date the viatical settlement provider properly assigns, sells or otherwise transfers the viatical settlements where the insured has not died; or

(2) The date that the last insured covered by a viatical settlement transaction has died; or

ii. Appoint, in writing, either the viatical settlement provider that entered into the viatical settlement, the broker who received commissions from the viatical settlement, if applicable, or any other viatical settlement provider or broker licensed in this State to make all inquiries to the viator, or the viatorís designee, regarding health status of the viator or any other matters.

(b) If a viatical settlement provider, viatical settlement broker or viatical settlement representative fails to pay the renewal fee within the time prescribed, or a viatical settlement provider fails to submit the report required by N.J.A.C. 11:4-35.11, such nonpayment or failure to submit the required report shall result in lapse of the license.

11:4-35.7 Denial of license

    1. Where it appears from an application, the attached documents or Department records that an applicant has not demonstrated the qualifications prescribed in the Act or this subchapter, the Department shall advise the applicant in writing that the license request is denied; shall specify the reasons for the denial; and shall advise the applicant of the right to request a hearing, and of the procedures for filing the request.

    1. A request for a hearing shall be filed within 20 days of receipt of the letter denying the request for a license.
    2. The request for a hearing by a viatical settlement provider shall be forwarded to:

Assistant Commissioner

Life and Health

New Jersey Department of Banking and Insurance

20 West State Street

PO Box 325

Trenton, NJ 08625-0325

3. The request for a hearing by a viatical settlement broker or viatical settlement representative shall be forwarded to:

Director of Licensing and Insurance Education

New Jersey Department of Banking and Insurance

20 West State Street

PO Box 325

Trenton, NJ 08625-0325

4. The request for a hearing shall include a statement of the legal and factual basis upon which the applicant disagrees with the denial of a license and all documentation in support thereof.

    1. Upon receipt of a request for a hearing on a license denial, the Department shall review the application and attachments, the Departmentís records and any additional information submitted, and shall determine whether the license will be issued.

11:4-35.8 Appointment requirements for viatical settlement representatives

(a) A person shall not act as a viatical settlement representative without first obtaining an appointment from a licensed viatical settlement provider or licensed viatical settlement broker.

1. The appointment shall be made on a form required by the Commissioner and accompanied by a fee of $100.00.

2. If the appointment is revoked by either party, the appointing viatical settlement provider or viatical settlement broker shall notify the Commissioner of the revocation within 30 days.

11:4-35.9 Approval of contracts and disclosure statements; right of rescission

(a) A person shall not use a viatical settlement contact or provide to a viator a disclosure statement form in this State unless filed with and approved by the Commissioner. A viatical settlement contract or disclosure statement form shall be deemed approved by the Commissioner if not disapproved within 60 days from submission. The Commissioner shall disapprove a viatical settlement contract or disclosure statement form if, in the Commissionerís opinion, the contract or provisions contained therein are unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the viator. At the Commissionerís discretion, the Commissioner may require, as part of the approval process, the submission of advertising material.

(b) All viatical settlement contracts entered into in this State shall provide the viator with an unconditional right to rescind the contract for at least 15 calendar days from the receipt of the viatical settlement proceeds. If the insured dies during the rescission period, the viatical settlement contract shall be deemed to have been rescinded, subject to repayment to the viatical settlement provider of all viatical settlement proceeds.

11:4-35.10 Standards for evaluation of reasonable viatical settlement proceeds

(a) Viatical settlement providers and viatical settlement brokers are prohibited from entering into viatical settlements with viators who are insured policyowners or certificateholders of individual or group life insurance policies containing accelerated death benefit provisions or riders that enable the insurer to pay more to the policyowner or certificateholder than would be paid pursuant to the viatical settlement.

(b) Viatical settlement providers and viatical settlement brokers shall obtain from viators a signed statement that the viators have contacted their life insurer and that their policy does not include an accelerated death benefits clause as provided in N.J.A.C. 11:4-30; or that they had the opportunity to contact their life insurer and chose not to do so, even after it was explained to them that their policy may contain a clause that would enable them to receive more money than the viatical settlement provider is offering.

(c) A viatical settlement provider or broker shall not enter into a viatical settlement that provides a payment to the viator that is unreasonable or unjust. In determining whether a payment is unreasonable or unjust, the Commissioner may consider, among other factors, the estimated life expectancy of the viator, the premiums due under the policy, the availability of loan or other values to reduce the cost of providing the settlement to the viator, reasonable costs of capital and expenses of doing business, and provisions for refund of premiums or payment of interest on death benefits.

11:4-35.11 Reporting requirement

(a) On or before March 1 of each year, each viatical settlement provider licensed in this State shall make and file with the Commissioner a report of all viatical settlement transactions where the viator is a resident of this State and for all states in the aggregate containing the following information for the previous calendar year.

1. For viatical settlements contracted during the reporting period:

i. The date of viatical settlement contract;

ii. The viatorís state of residence at the time of the contract;

iii. The life expectancy of the insured at time of contract in months;

iv. The face amount of policy viaticated;

v. The net death benefit viaticated;

vi. The estimated total premiums to keep policy in force for mean life expectancy;

    1. The net amount paid to viator;

viii. The payment type (lump sum or fixed annuity);

ix. The source of policy (B-Broker; D-Direct Purchase; SM-Secondary Market);

x. The type of coverage (I-Individual or G-Group);

xi. Whether the policy is within the contestable or suicide period, or both, at the time of viatical settlement (yes or no);

xii. The primary ICD Diagnosis Code, in numeric format, as defined by the international classification of diseases, as published by the U.S. Department of Health and Human Services; and

xiii. The type of funding (I-Institutional; P-Private);

2. For viatical settlements where death has occurred during the reporting period:

i. The date of viatical settlement contract;

ii. The viatorís state of residence at the time of the contract;

iii. The life expectancy of the insured at time of contract in months;

iv. The net death benefit collected;

v. The total premiums paid to maintain the policy (WP-Waiver of Premium; NA-Not Applicable);

vi. The net amount paid to viator;

vii. The primary ICD Diagnosis Code, in numeric format, as defined by the International classification of diseases, as published by the U.S. Department of Health and Human Services;

viii. The date of death;

ix. The mount of time between date of contract and date of death in months; and

x. The difference between the number of months that passed between the date of contract and the date of death and the mean life expectancy in months as determined by the reporting viatical settlement provider;

3. The name and address of each viatical settlement broker through whom the reporting viatical settlement provider purchased a policy from a viator who resided in this State at the time of contract;

4. The number of policies reviewed and rejected;

5. The number of policies purchased in the secondary market as a percentage of total policies purchased;

6. An audited financial statement; and

7. A study of mortality experience (see subchapter Appendix incorporated herein by reference) signed by a member of the American Academy of Actuaries (MAAA).

11:4-35.12 Payment of the proceeds

(a) With respect to policies containing a provision for double or additional indemnity for accidental death, the additional payment shall remain payable to the beneficiary last named by the viator prior to entering into the viatical settlement contract, or to such other beneficiary, other than the viatical settlement provider, as the viator may thereafter designate, or in the absence of a beneficiary, to the estate of the viator.

(b) Payment of the proceeds of a viatical settlement pursuant to N.J.S.A. 17B:30A-8d shall be by means of wire transfer to the account of the viator or by certified check or cashierís check.

    1. Payment of the proceeds to the viator pursuant to a viatical settlement shall be made in a lump sum except where single premium fixed annuity has been purchased from an insurance company for the benefit of the viator. The viatical settlement provider cannot be the owner of the annuity. The terms of the payment agreement, including the ownership of the annuity, the insurance company insuring the annuity and the amount of and form of payments under the annuity, shall be reasonable. The viator shall always be offered the option of a lump sum payment. Retention of a portion of the proceeds by the viatical settlement provider or escrow agent is not permissible.

11:4-35.13 Viatical settlement provider/broker/representative conduct

(a) A viatical settlement provider, viatical settlement broker or viatical settlement representative shall not discriminate in the making or solicitation of viatical settlements on the basis of race, age, sex, national origin, creed, religion, occupation, marital or family status or sexual orientation, or discriminate between viators with dependents and without.

(b) A viatical settlement provider, viatical settlement broker or viatical settlement representative shall not pay or offer to pay any finderís fee, commission or other compensation to any insuredís physician, or to an attorney, accountant or other person providing medical, legal or financial planning services to the viator, or to any other person acting as an agent of the viator with respect to the viatical settlement.

(c) A viatical settlement provider shall not knowingly solicit investors who have treated or have been asked to treat the illness of the insured whose coverage would be the subject of the investment.

(d) A licensed viatical settlement provider or broker corporation may conduct its business only through its members, officers, designated employees or appointed representatives and is responsible for the activities of such members, officers, designated employees and appointed representatives.

11:4-35.14 Viatical settlement provisions

(a) If a viatical settlement provider enters into a viatical settlement that allows the viator to retain an interest in the policy, the viatical settlement contract shall contain the following provisions:

i. A provision that the viatical settlement provider will effect the transfer of the amount of the death benefit only to the extent or portion of the amount viaticated. Benefits in excess of the amount viaticated shall be paid directly to the viatorís beneficiary by the insurer;

ii. A provision that the viatical settlement provider will, upon acknowledgment of the perfection of the transfer, send to the viator a copy of the instrument sent from the insurer to the viatical settlement provider that acknowledges the viatorís interest in the policy; and

iii. A provision that apportions the premiums to be paid by the viatical settlement provider and the viator. It is permissible for the viatical settlement contract to specify that all premiums shall be paid by the viatical settlement provider. The contract may also require that the viator reimburse the viatical settlement provider for the premiums attributable to the retained interest.

11:4-35.15 Advertising standards

Advertising related to the viatical settlement shall be truthful and not misleading by fact or implication. If the advertiser emphasizes the speed with which the viatication will occur, the advertising shall disclose the average time frame from completed application to the date of offer and from acceptance of the offer to receipt of the funds by the viator. If the advertising emphasizes the dollar amounts available to viators, the advertising shall disclose the average purchase price as a percent of face value obtained by viators contracting with the advertiser during the six months prior to the advertising.

11:4-35.16 Disclosure

(a) A disclosure document containing the disclosures required in N.J.S.A. 17B:30A-7 and this subchapter shall be provided before or concurrent with taking an application for a viatical settlement contract.

(b) The disclosure document shall contain the following language: "All medical, financial or personal information solicited or obtained by a viatical settlement provider or viatical settlement broker about a viator and insured, including the viator and insuredís identity or the identity of family members, a spouse or a significant other, is confidential." The information shall not be disclosed in any form to any person, unless disclosure:

1. Is necessary to effect the viatical settlement between the viator and the viatical settlement provider; and

2. The viator and insured have provided prior written consent to the disclosure.

(c) The disclosure document shall include advising the viator and insured that the information may be provided to financing entities including individual and institutional purchasers.

(d) A disclosure statement shall contain the following language: "A brochure entitled ĎSelling Your Life Insurance Policy: Understanding Viatical Settlementsí may be obtained, upon request, from the Department in cooperation with the National Association of Insurance Commissioners."

 

11:4-35.17 Prohibited practices

(a) A viatical settlement provider, viatical settlement broker or viatical settlement representative shall not provide patient identifying information to any person, unless the insured and viator provide written consent to the release of the information at or before the time of the viatical settlement transaction pursuant to N.J.A.C.11:4-35.16(b).

(b) A viatical settlement provider, viatical settlement broker or viatical settlement representative shall obtain from a person that is provided with patient identifying information a signed affirmation that the person or entity will not further divulge the information without procuring the express, written consent of the insured for the disclosure. Notwithstanding the foregoing, if a viatical settlement provider, viatical settlement broker or viatical settlement representative is served with a subpoena and, therefore, compelled to produce records containing patient identifying information, it shall notify the viator and the insured in writing at their last known addresses within five business days after receiving notice of the subpoena.

(c) A viatical settlement provider shall not act also as a viatical settlement broker, whether entitled to collect a fee directly or indirectly, in the same viatical settlement.

(d) A viatical settlement broker shall not act as the viatical settlement broker regarding a life insurance policy if the broker is the life insurance producer that produced or receives commissions from the policy being viaticated.

(e) A viatical settlement broker shall not, without the written agreement of the viator obtained prior to performing any services in connection with a viatical settlement, seek or obtain any compensation from the viator.

(f) A viatical settlement provider shall not use a longer life expectancy than is realistic in order to reduce the payout to which the viator is entitled.

(g) No person shall knowingly enter into a viatical settlement contract the subject of which is a life insurance policy that was obtained by means of a false, deceptive, or misleading application for the life insurance policy.

11:4-35.18 Imposition of administrative penalties/suspension/revocation of license

(a) A violation of the Act or these rules shall be considered an unfair practice pursuant to N.J.S.A. 17B:30-1 et seq. and shall be subject to the penalties contained in N.J.S.A. 17B:30-17.

(b) Before an administrative penalty is imposed, the Department shall direct a notice by certified mail and regular mail, or by personal delivery, to the last known business or mailing address of the alleged violator. The notice shall include:

1. A reference to the statute, rule and/or administrative order alleged to be violated;

2. A concise statement of the facts on which the violation is based;

3. A statement of the administrative penalty, penalties or other relief sought to be imposed; and

4. A statement advising the alleged violator of the right to a hearing and the procedure for requesting a hearing.

(c) The notice may describe more than one violation, or more than one specific penalty or other relief for each violation. A single form of notice may be used to notify several alleged violators, so long as all are named and served with a copy of the notice in conformity with the provisions of (d) below.

(d) The notice shall be served by personal delivery, or by certified mail and regular mail to the alleged violatorís last known business or mailing address, according to the files maintained by the Department. Service in this manner shall be considered lawful service on the alleged violator.

(e) The alleged violatorís failure to respond, as required by the notice, within the time provided in the notice, shall be deemed to be an admission of all of the allegations, charges and conclusions contained in the notice, and no further proceeding shall be required prior to the execution of a final order that imposes the administrative penalty, penalties or other relief described in the notice.

(f) If no response is received within the time provided in any notice to suspend or revoke a license or authority to conduct any activity regulated by N.J.S.A. 17B:30A-l et seq., the Department shall prepare a final order suspending or revoking the license or authority to conduct such activity, and mail a copy of the order to the violator at the violatorís last known business address on file with the Department.

(g) If the notice issued pursuant to this section provided for the payment of any fine, restitution or reimbursement to the Department for investigative or examination cost, and payment or proof of payment has not been received, the Department may proceed without further notice to suspend or revoke the license or authority of the violator as provided at N.J.S.A. 17B:30A-3.

(h) In order for matters set forth in a notice to be deemed concluded by means of a consent by the alleged violator to the imposition of the administrative penalty or other relief described in the notice, the Department may require any or all of the following:

1. That the licensee return the license to the Department for cancellation;

2. The payment of a monetary penalty;

3. The reimbursement to the Department of the costs of investigation and examination;

4. The restitution of monies owed any person; and/or

5. The execution of an administrative order that may include admissions of material facts, conclusions of law and such other terms and conditions as the Commissioner or his or her authorized designee may deem to be necessary and appropriate under the circumstances.

(i) An alleged violator shall have 20 calendar days from service of the notice of intent to impose an administrative penalty within which to deliver a written request for a hearing to Administrator, Enforcement Bureau, New Jersey Department of Banking and Insurance, PO Box 329, Trenton, New Jersey 08625.

(j) A request for a hearing shall include:

1. The name, address and daytime telephone number of the alleged violator;

2. A copy of the notice;

3. A statement requesting a hearing;

4. A specific admission, denial or explanation of each fact alleged in the notice, or a statement that the alleged violator is without knowledge thereof; and

5. A concise statement of the facts or principles of law asserted to constitute any factual or legal defense.

(k) If a hearing request fails to include a specific admission, denial or explanation of each fact alleged, or a statement that the alleged violator is without knowledge thereof, the facts alleged in the notice shall be deemed to have been admitted.

(l) If a hearing request lacks any of the elements in (j) above, the Department shall, by certified mail and regular mail, or by personal delivery, advise the alleged violator of the deficiencies and provide an additional 10 calendar days from the issuance of the deficiency letter to correct them. If no reply correcting the deficiencies is received by the Department within 10 calendar days, the Department may issue a final order without granting a hearing.

(m) Upon receipt of a properly completed request for a hearing, the Chief of Enforcement or such other Department personnel as may be designated by the Commissioner, shall examine the request and may conduct or direct such further proceedings as may be appropriate, including, but not limited to, an interview with the alleged violator.

(n) Not later than 60 days after the receipt of a properly completed request for a hearing, the Chief of Enforcement, or such other Department personnel as may be designated by the Commissioner, shall advise the alleged violator of the manner of disposition, which may be as follows:

1. Terminated with or without prejudice;

2. Resolved by consent order, which may provide for a lesser or different administrative penalty; or

3. A finding that the matter constitutes a contested case, pursuant to the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. In such a case, the Department shall transmit the matter to the Office of Administrative Law for a hearing consistent with the Uniform Administrative Practice Rules, N.J.A.C. 1:1.

 

 

VS6/inoregs

Appendix A

Mortality Experience Table

By Number of Contracts

Life Expectancy at Issue

In Force 01/01/----

Contracts added during year

Expected Deaths

Actual Deaths

< 6 months

       

6 to 12 months

       

12 to 18 months

       

18 to 24 months

       

24 months or more

       

 

By Amount of Insurance

Life Expectancy at Issue

In Force 01/01/----

Contracts added during year

Expected Deaths

Actual Deaths

< 6 months

       

6 to 12 months

       

12 to 18 months

       

18 to 24 months

       

24 months or more

       

In column 1, enter the number of contracts in force or amount of insurance in force under viatical settlements as of the beginning of the year, broken down by the life expectancy on which the original consideration was based.

In column 2, enter the number of contracts added during the year.

In column 3, enter expected deaths (number or amount) from columns 1 and 2, as estimated by the providerís actuary and based on life expectancy assumptions.

In column 4, enter the actual deaths (number or amount) from columns 1 and 2.

 

 

Signature of Member of the American Academy of Actuaries Date

 

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