SB 0736 - Fiscal Note

Fiscal Note - SB 0736 - Viatical Settlements Regulated (Payment of Death Benefits)

L.R. NO.  1754-01
BILL NO.  SB 736
SUBJECT:  Life Insurance, Insurance, Department of Insurance, Consumer
TYPE:     Original
DATE:     January 17, 1996



                              FISCAL SUMMARY
                    ESTIMATED NET EFFECT ON STATE FUNDS


FUND AFFECTED              FY 1997            FY 1998           FY 1999
Insurance
Dedicated                ($28,034)          ($47,292)         ($49,117)

Total Estimated
Net Effect on All
State Funds              ($28,034)          ($47,292)         ($49,117)

                   ESTIMATED NET EFFECT ON FEDERAL FUNDS


FUND AFFECTED              FY 1997            FY 1998           FY 1999
None

Total Estimated
Net Effect on All
Federal Funds                   $0                 $0                $0

                    ESTIMATED NET EFFECT ON LOCAL FUNDS


FUND AFFECTED              FY 1997            FY 1998           FY 1999
Local Government                $0                 $0                $0


                              FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Insurance (DOI) assume this proposal would
have fiscal impact on the DOI Insurance Dedicated Fund.

DOI estimates that there would be a license pool of approximately 100.  The
license fee would be $100 annually.  Income from the original applicants
would be $10,000 (100 x $100).  Beginning in FY 98, each annual statement
filing would be accompanied with an additional $50 fee; therefore, an
additional $5,000 (100 x $50) would be realized.

DOI assumes that this proposal would require the director of DOI to regulate
discount rates utilized in viatical settlement contracts.  DOI assumes that
this would require additional actuarial services, which would be contracted
with an estimated cost for six months of FY 97 of $10,000; FY 98 of $21,425;
and FY 99 of $22,174.  Officials stated that an Insurance Financial Analyst
II (1.0 FTE) ($25,513) would be needed to review original applications for
licensure and review contracts and annual statement filings.  DOI assumes
expenses would include rental space for one FTE and communication and office
expenses of $5,458.  Equipment would include a personal computer and office
workstation of $8,628.


FISCAL IMPACT - State Government        FY 1997   FY 1998   FY 1999
                                        (6 Mo.)

INSURANCE DEDICATED FUND

Income - Department of Insurance
   Application fees                     $10,000   $15,000   $15,000

Costs - Department of Insurance
   Personal service (1 FTE)           ($12,756) ($26,805) ($27,475)
   Fringe benefits                     ($3,921)  ($8,240)  ($8,456)
   Expense and equipment              ($21,357) ($27,247) ($28,186)
Total Costs - Department of Insurance ($38,034) ($62,292) ($64,117)

ESTIMATED NET EFFECT ON
INSURANCE DEDICATED FUND              ($28,034) ($47,292) ($49,117)


FISCAL IMPACT - Local Government        FY 1997   FY 1998   FY 1999
                                        (6 Mo.)

                                             $0        $0        $0


DESCRIPTION

This proposal is called the "Viatical Settlements Act" and would regulate the
transfer of interest in life insurance.

This proposal would require the Department of Insurance (DOI) to issue a
license for every person desiring to act as a viatical settlement provider.
A viatical settlement provider is defined as some entity who pays
compensation to a person covered under a life insurance policy to obtain the
future death benefit from that person.

The director of DOI would collect an annual license fee of $100.  Applicants
for a license would provide a detailed plan of operation and would have a
good reputation, experience, and competence.

Viatical settlement contracts would have to be filed with the director of DOI
for approval.  A contract could be disapproved if it is unreasonable,
contrary to public interest , or misleading.  The director of DOI would be
allowed to examine the records of any licensee or applicant and the expense
of the examination would be borne by the licensee or applicant.

The viatical settlement provider would be required to give specified
information to the insured person, including possible alternatives, tax
consequences, and the right to rescind.  If the insured person would have
life-threatening illness, that person would first be certified to be of sound
mind and would give written consent to the contract.

The insured would be allowed to request a refund within 30 days of the
contract or 15 days of receipt of the proceeds, whichever is less.

Any violation of this proposal would be considered an unfair trade practice.
Fines for such violations reach $25,000 per violation and $250,000 in the
aggregate.

This proposal has an effective date of January 1, 1997.

This legislation is not federally mandated, would not duplicate any other
program and would not require additional capital improvements or rental
space.

SOURCES OF INFORMATION

Department of Insurance