Landmark Consumer Protection Legislation Becomes Law
Reform Outlaws Improper Practices in the Life Settlement Industry
Albany, NY) – Critically needed legislation sponsored by New York State Senator Neil D. Breslin (D-Delmar), has been signed into law by Governor David A. Paterson. This legislation regulates the billion dollar life settlement market in New York ensuring that, among other things, the medical and financial information of those who enter into a life settlement transaction is protected.
The life settlement industry began in the late 1970’s and 1980’s when, during the AIDS epidemic, many seriously ill individuals with life insurance policies sold their policies to pay for medical care, experimental medical treatments or other essential needs. In 1994, Article 78 of the Insurance Law was enacted to regulate transactions where an insured with a catastrophic or life-threatening illness or condition sold his or her life insurance policy.
Recently a new life settlement market has developed, wherein owners of life insurance policies where the insureds do not have a life-threatening illness are selling their policies. The insured individuals generally are senior citizens who may no longer want or need their policy and who are able to obtain a monetary benefit greater than the cash surrender value but less than the death benefit of the policy by selling their policy to a “life settlement provider”. The life settlement provider often then resells the policy to third party investors. Until now, these transactions, which fall outside of the scope of Article 78 of the Insurance Law, have been unregulated. This law will regulate these life settlement transactions.
The legislation contain numerous disclosure and consumer protection provisions ensuring that an owner considering selling his or her policy makes an informed decision. The owner of the policy and the individual insured are now required under the policy to consent to the release of medical and other personal information. In addition, life settlement companies and investors must keep any personal information received as part of the transaction confidential.
Consumers will specifically be protected from the previous practice of stranger-originated life insurance (STOLI), a type of illegitimate life settlement that has become prevalent over the last few years. In a STOLI transaction, life settlement companies and investors target individuals, typically senior citizens, to purchase a large face amount life insurance policy for the sole purpose of selling the policy within a very short period of time.
“I was pleased to play a central role in crafting this landmark consumer protection legislation which brings much needed regulation to the growing life settlement industry. This legislation contains numerous disclosure and consumer protection provisions which will help to ensure that an owner considering selling his or her policy makes an informed decision. The legislation will also protect the medical and other personal information of those who enter into a life settlement transaction. In addition, this legislation specifically outlaws certain improper and abusive practices currently happening in the life settlement industry. I applaud the Governor for signing what will be one of the most comprehensive and effective laws in the country for the regulation of the life settlement industry,” said Senator Neil D. Breslin (D-Delmar).
"These reforms provide critical consumer protection without restricting the legitimate functions of the life settlement marketplace," said Assembly Joseph D. Morelle, D-Irondequoit, sponsor of the bill in the Assembly. "I believe this strikes the right balance between the need for public
oversight and the independence of the private sector. I'm proud to have sponsored this bill, and I thank Senator Breslin for his partnership and leadership on this issue."
Senate President Malcolm A. Smith said, “Consumers entering into life settlement transactions deserve to be well informed in their decision. I am pleased that this bill has been signed by Governor Paterson and would like to thank Senator Breslin for his determination and diligence in the creation of this critical legislation that will protect New York’s consumers.”
Senate Majority Conference Leader John L. Sampson said, "New Yorkers are living longer and changing the life settlement dynamics, opting out of long-term agreements. Passage of today’s legislation will protect consumers, and ensure adequate regulation of the life insurance industry."
Senator Eric T. Schneiderman (D-Manhattan/Bronx) said, “Currently, fraud and abuse run rampant in New York’s life settlement industry. By creating a smart regulatory framework, this legislation brings commonsense checks and balances to the market and protects consumers from abusive insurance practices. I am proud to support these long overdue reforms.”
Senate Health Committee Chair Thomas K. Duane said, "I commend Senator Breslin for shepherding this much needed reform."
Senator Suzi Oppenheimer (D-Mamaroneck) said, “Seniors living on fixed or limited incomes are particularly vulnerable to unscrupulous insurance practices. This legislation, which I strongly support, contains critical safeguards to ensure that seniors are both fully informed and
adequately protected when considering a life settlement arrangement.”
Senator Brian X. Foley (D – Blue Point) said, “This critical consumer protection legislation will help ensure that seniors and other vulnerable members of our society are not taken advantage of by those seeking to make a quick buck. I am proud to support this legislation because it will finally regulate an industry that has long operated in the shadows.”
Senator William Stachowski (D-C, Lake View) said, “Life settlements have the serious potential for abuse. With the stress of a struggling economy and financial pressures, many cash strapped New Yorkers are searching for ways to liquidate valuable assets including their life insurance policies. This legislation protects consumers by establishing more comprehensive disclosure requirements so that they will have the critical information they need to make such an important decision.”
Thomas E. Workman, President and CEO of The Life Insurance Council of New York, Inc. (LICONY) said, "This new law will ensure that our customers have all of the information necessary to make an appropriate decision when considering whether or not to sell their life insurance policy to investors. I would like to express my gratitude to Governor Paterson, Superintendent Jim Wrynn and the New York State Insurance Department, as well as to the sponsors, Senator Neil Breslin and Assemblyman Joe Morelle, for playing a leadership role in the enactment of this legislation. They have worked long and hard on appropriate regulation of the secondary market for life insurance policies."
Lois Aronstein, AARP NYS Director said, “This new law for the first time will bring needed oversight and consumer protections to life settlement transactions in New York. We commend the leadership of Senator Breslin and Assemblyman Morelle in proposing more transparency and
disclosures in this industry that will benefit all consumers.”
Insurance Superintendent James Wrynn said: “The Insurance Department applauds the leadership demonstrated by Gov. Paterson and the Legislature in pursuing passage of this legislation. The new law establishes strong consumer protections for New Yorkers by giving the Insurance Department the tools it needs to ensure transparency and the disclosure of vital information to consumers engaging in life settlements.”
You can read the full text of this bill as well as leave a comment about it here: http://open.nysenate.gov/legislation/api/html/bill/S3655A