Dear Saskatchewan MLA,
For more than 70 years in Saskatchewan, policy owners have been unrestrained in their enjoyment of their life policies which has been long recognized by law as a form of intangible personal property. Canadian laws and culture promote the freedom of Canadians in dealing with their personal property as they see fit unless there are concerns that the enjoyment of such property is against public interest. This is about to change with Bill 177 introduced in the Saskatchewan legislature.
What has changed in these last years for MLA Wyant to introduce a bill on December 4th,2014 that radically changes the Insurance Act under the pretext of consumer protection?
Why is Bill 177 proposing to retroactively limit the ownership rights of Saskatchewan life policy owners through the addition of an anti-trafficking provision in the Insurance Act? Has there been a sudden increase in trafficking of life policies in Saskatchewan? Since such trafficking would involve viatical settlements, has there been frauds involving this type of financial instruments? Are there any independent studies that would indicate that an anti-trafficking provision is needed to be added to the Insurance Act? Would such provision actually protect the consumers?
The answers to these questions are important. The answers to these questions will show the people whether the legislative process has been subverted where laws are not enacted for the public good. Instead laws are passed for the benefit of very powerful private interests who have unprecedented access and influence over public officials.
No trafficking provision versus trafficking provision
Anybody with any power of observation would notice that after 70 years there are absolutely no differences in the existence of a life settlement market between provinces that have the trafficking provision and the provinces that have no trafficking provision. We can therefore conclude that the nonexistent trafficking provision in the Insurance Act is as much a deterrent to the business of life settlements as an Insurance Act with such a provision. We have to ask ourselves why insurance companies are ferociously lobbying the regulators and government to maintain or include such a provision in the Insurance Act. Is there a hidden agenda? Is this a pretext to stop the emergence of a new financial transaction that would benefit Canadians?
Reverse Mortgage: a critical tool in securing the financial future of Canadians
Canadians faced with longer life expectancy, and the failure of the government to fund their promise to provide the health services they require as they increase in age, must find new ways to fund the shortfall existing in their retirement plan. Reverse mortgages will become one of the main tools used by elders to close any financial gaps in their financial plan or to address any unexpected expenses resulting from a change in health.
Canadians are discovering that they can effectively get a reverse mortgage/loan on their life policy where the loan would be secured by the death benefit of such life policy. It is quite clear that insurance companies do not want Canadians to be able to borrow a percentage of their death benefit. Instead insurance companies want to limit Canadians to only borrow from the cash value of their policy. They want to limit Canadians to two choices; either surrender the policy to get the cash value or borrow against such cash values. This is an attack on middle income Canadians because insurance companies know that such Canadians did not have the money to invest in their life policy to build up cash values since they only have paid the minimum premium. As a result, if an elderly policy owner faces financial hardship because of cancer for example, insurance companies wants this elder to be forced into canceling his policy in an act of desperation to get a little bit of cash values and to save on the minimum premium that needs to be paid year after year. There is tremendous profit in this strategy for insurance companies since they won’t have to pay a death benefit to sick old people. The availability of reverse mortgages secured by life insurance jeopardizes this profit strategy of insurers. Policy owners won’t cancel their policies if they have access to funding through borrowing. They will be able to pay their premiums, they will be able to sustain their retirement or pay for the expenses associated with any medical conditions.
By using the trafficking provision, insurers will be able to control the hypothecation of life insurance as shown by the wording of this provision:
Any person other than an insurer or its authorized agent who advertises, or holds himself or herself out, as a purchaser of life insurance policies or of benefits under it, or who traffics or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation of them to himself or herself or any person, commits an offense against this Act.
Independent studies of life settlements
Provincial governments such as the Ontario government have commissioned a review to study the pertinence of the trafficking provision which led to the Red Tape Reduction Commission on Viaticals. This commission recommended that section 115 anti-trafficking of Ontario Insurance Act be repealed. Sadly because of elections, the government of Ontario never acted on the recommendation of its commission in 2001 and since then insurers have been able to use their power and money to get elected officials to forget the recommendations of the commission. Independent studies were also conducted by organizations such as the Canadian Center for Elder Law Studies, a division of the British Colombia Law Institute which basically arrived at the same conclusions of the Red Tape Commission
These independent studies are ignored by the regulators and legislators. It is clear they only now listen to private interests backed by power and money and new legislation such as Bill 177 is introduced solely to help private interests against what is good for the public.
Recommendations of the Financial Services Consumers Alliance
We worded our recommendations in regard to the anti-trafficking provision in the Insurance Act based on the following objectives
1)Protect the financial future of the elderly and people faced with sickness
2)Protect the beneficiaries of life insurance policies
3)Reduce the lapses of life insurance policies
4)Act in the public interest
Example: Milgrid is a 75 year old widow who has just been diagnosed with skin cancer. As a widow, her financial security is very fragile. Expenses associated with her cancer are now threatening her financial security. She still has a $300,000 Joint last to die policy purchased 20 years ago by her late husband. There are little cash values in the policy since they have been only paying the minimum annual premium of $2,000. Now she can’t afford to pay this premium anymore. She has approached the insurer to get an advance on her death benefit but this was refused by the insurer because she was not sick enough. She can’t afford the policy. However she learned that while her policy has no cash values, it has a fair market value which has increased because of her cancer. As a result, a private lender would be willing to lend her $100,000 less the premiums required to pay the policy which would provide her with about a $60,000 lump sum. She can now deal with her sickness without any financial worries and she still owns her life policy.
Insurers are against this. They want Milgrid to struggle financially. They want her to miss one of her premium payments resulting in the lapse of the policy which will generate $300,000 of profit to the insurer since they won’t have to pay a death benefit. Luckily she got sick before Bill 177 was passed into law…
This is the hidden agenda of insurance companies…
Why would a reverse mortgage against a house be legal and a reverse mortgage against a life policy be illegal?
Required Changes to Bill 177
If an anti-trafficking provision is to be added to the Insurance Act, this provision should be modified to allow the hypothecation of life insurance.
With the creation of a hypothecation market in Canada, this will allow Canadian policy owners a competitive access to lenders willing to offer reverse mortgages backed by life insurance. Elders or people faced with a sudden sickness would be able to access an additional source of funds by taking a loan based on the value of the death benefit of their policy. With this source of funds, these policy owners will be able to meet their financial obligations while being able to continue paying their premiums meaning that their policies would not lapse. While the benefit paid to the beneficiaries would be reduced by the loan amount to be repaid on death, the beneficiaries would get at least a residual benefit not available if the policy had lapsed.
Insurers owe tens of millions of dollars in fine to Saskatchewan
Insurers have been breaking the law (Insurance Act) for a long time by paying commission to unlicensed agents while the Superintendent of Insurance has been looking the other way. The application of the provisions of the current Insurance Act would have resulted in tens of millions of dollars in fines to be paid by insurers.
Bill 177 proposes to erase this by making the payment of service commission to unlicensed agent legal in Saskatchewan as seen below:
Dealing with unauthorized insurance intermediaries
7-2(1) No insurer, no officer, employee or agent of an insurer and no insurance intermediary shall, directly or indirectly, pay or allow, or offer or agree to pay or allow,any commission or other compensation or anything of value to any person acting or offering to act as an insurance intermediary in Saskatchewan, unless that person is authorized to act as an insurance intermediary pursuant to this Act.
(2) Subsection (1) does not apply to the payment of renewal commissions under the terms of an agency contract.
Life policies are a promise. They include a promise of service. These policies are sold and have been sold in Saskatchewan based on the expectation that the policy owner will receive services from a licensed agent for the duration of the policy. This service is paid through expenses loads applied against the policy. Under Bill 177, these services fees paid by policy owners can be paid to anyone who is unlicensed (widow, child, uncle, aunt of a deceased agent for example) while these unlicensed agents are prohibited by the Insurance Act to provide the service they have been paid to provide. This is supposed to protect consumers… These mean more and more orphan policy owners. This mean that people like Milgrid struggling with sickness such as cancer will be on their own to look after their policies. If Milgrid, 10 years later, is suddenly faced with dementia, there is no one to ensure that premiums are paid since there is no paid licensed servicing agent assigned to the policy. So the policy will lapse and the insurer will make a great profit not having to pay for the death benefit.
How is this supposed to protect the consumer? Bill 177 allows insurers to make false representations as to the service that will be provided after the sale of a policy. Bill 177 allows insurers to charge for a service which will never be delivered.
Risks of Fraud in the Hypothecation Market
There are no risks. Consumers retain the ownership of their policy and therefore there cannot be any trafficking. Insurers would state this would promote the issue of Stranger originated insurance which is false. Contractually or through the life application, the insurer can stop any Stranger originated insurance. For example, on most life application there is a question that asks the applicant to disclose if the policy will be assigned or transferred. If the policy owner lies, the policy would become voidable in the first two years of the issue of the policy under the misrepresentation clause. As a result there is no need for an anti-trafficking provision to stop any Stranger originated insurance.