INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Viatical Settlements

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

Proposed: January 16, 2001 at 33 N.J.R. 162(a).

Adopted: June 11, 2001 by Karen L. Suter, Commissioner, Department of Banking and Insurance

Filed: June 11, 2001 as R. 2001 d.226, with substantive and technical changes not requiring additional public notice and comment (see N.J.A.C. 1:30-4.3).

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

Effective Date: July 2, 2001.

Expiration Date: November 30, 2005.

Summary of Public Comments and Agency Responses:

The Department received three written comments on the proposal, one on behalf of Coventry Financial LLC, a life and viatical settlement broker; one from the Viatical and Life Settlement Association of America; and one from the Certified Financial Planner Board of Standards, Inc.

COMMENT: One commenter objected to the definition of "resident (of New Jersey)" found in N.J.A.C. 11:4-35.2. The commenter stated that the reference to an office in New Jersey should be deleted because it creates a potential conflict with the application of other state laws where the office holder might actually reside.

RESPONSE: The Departmentís definition of a "resident (of New Jersey)" is consistent with its producer licensing requirements for determining what constitutes a "resident." These rules do not prevent a licensee from being a resident applicant in more than one state.

COMMENT: One commenter suggested that the Department amend its definition of "viatical settlement broker" found in N.J.A.C. 11:4-35.2 to track the definition in the National Association of Insurance Commissioners ("NAIC") Viatical Settlements Model Act. The commenter stated that it believes that the amendment would create uniformity and strengthen these rules.

RESPONSE: The Departmentís definition of a "viatical settlement broker" in N.J.A.C. 11:4-35.2 is consistent with the definition found in N.J.S.A. 17B:30A-1. The Department notes that the National Association of Insurance Commissioners ("NAIC") recently adopted changes to the Viatical Settlement Model Act. These changes were not part of the enabling legislation, N.J.S.A.17B:30A-1 et. seq., which was approved September 17, 1999, and which serves as the basis for these rules.

COMMENT: One commenter expressed concern that the Departmentís definition of "viator" describes conditions that are not defined in the proposed rules or in N.J.S.A. 17B:30A-1. The commenter stated that the Departmentís rule includes a definition for the term "terminally ill." This term is defined as an illness or sickness that can reasonably be expected to result in death in 24 months or less. The commenter stated that this rule and the statutory definition of "viator" should mean the owner of a life insurance policy who is "terminally ill." The commenter stated that terms used in the proposed ruleís definition of "viator", that is, "catastrophic," "life threatening," "chronic illness or condition," are not defined in the rule or the viatical settlement law. The commenter stated that the term "terminally ill" is defined but is not used in other definitions, particularly in the definition of "viator." The commenterís position is that the definitions of viatical settlement contract and viatical settlement provider are dependent upon the definition of viator. The commenter stated that the lack of preciseness in the definition of viator leaves open the question of exactly what type of business is regulated by the authorizing statute and the Departmentís rules.

The commenter suggested that the Department include the provision set forth in the new NAIC Model definition of "viator." The commenter noted that the NAIC Model excludes several transactions or individuals in the definition of viatical settlement provider.

The commenter suggested that the Department include the National Coalition of Insurance Legislators' (NCOIL) definition of "viatical settlement provider" and the carve outs to its definition. The NCOIL definition states that a viatical settlement provider does not include a financial entity; a special purpose entity; a related provider trust; or a viatical settlement purchaser. The commenter also suggested that the definitions for "special purpose entity" and "related provider trust" be utilized.

RESPONSE: The Department does not believe that the definition of viator should be amended. The Departmentís definition of "viator" in N.J.A.C. 11:4-35.1 is consistent with the authorizing statute N.J.S.A. 17B:30A-1, which serves as the basis for these rules. There is no need to add definitions for "special purpose entity" or "related provider trust" because the Department is not expanding the definition of "viator" to include the commenterís suggested carve out language.

COMMENT: One commenter suggested that the definition of "viatical settlement representative" should be deleted or the definition should be restricted because, as written, it is overly broad and would include any employee of the viatical settlement provider or the viatical settlement broker. Additionally, the commenter stated that these definitions have been excluded from the new NAIC Model and NCOIL Model Acts. The commenter stated that N.J.S.A. 17B:30A-2.e addresses this issue: "A license issued to a legal entity authorizes all members, officers and designated employees to act as viatical settlement providers, viatical settlements brokers or viatical settlement representatives, as applicable, under the license, and all those persons shall be named in the application and any supplements to the applications."

RESPONSE: The Departmentís definition of "viatical settlement representative" found in N.J.A.C. 11:4-35.2, is not overly broad. This provision tracks the language found in the authorizing statute, N.J.S.A. 17B:30A-1.

COMMENT: One commenter expressed concern with N.J.A.C. 11:4-35.3(c), of the general licensing requirements. This provision requires individual applicants who seek licensure as viatical settlement brokers or viatical settlement representatives to pass Part 1 of the State (NJ) licensing examination. The commenter stated that they cannot comment on Part 1 of the State licensing examination, "Life - General Product Knowledge," without knowing what the licensing examination entails. The commenter stated that many states have provisions in their rules that permit a general exemption allowing for licensure of entities and individuals who have long engaged in the business. Additionally, the commenter recommended that if the examination is to be a condition of licensure, then they urged the Department to offer it in a form that will allow it to be taken in locations remote from New Jersey.

RESPONSE: The Department is amending N.J.A.C. 11:4-35.3(c) to permit individuals from another state to waive Part 1 of the exam if they can provide proof that they have passed their respective stateís life product portion of the life insurance agentís exam.

COMMENT: One commenter stated that the $1,000 application fee found in N.J.A.C. 11:4-35.4(9)1 is an expensive charge and the commenter suggested that the Department reduce it to $500.00.

RESPONSE: The $1,000 application fee reflects the Department's anticipated costs incurred in its review and processing of these applications. The Department believes that the $1,000 application fee is an appropriate and reasonable amount.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.4(a)6ii which requires foreign corporations to complete and execute forms consenting to the jurisdiction of the Commissioner and the New Jersey Courts. The commenter stated that this provision may conflict with other State laws and may be an unconstitutional restriction on interstate commerce.

RESPONSE: This provision tracks the language found in N.J.S.A. 17B:30A-2g, the authorizing statute. The Department does not believe that this provision is an unconstitutional restriction on interstate commerce. The Department disagrees with the commenter and believes that this provision is reasonable and appropriate and consistent with the practice in other licensing areas within the Department.

COMMENT: One commenter expressed concern with N.J.A.C. 11:4-35.4(a)13ii, and its inclusion of "civil" actions. The commenter stated that it is unnecessary, and depending upon the size of a company's business throughout the country, it could be extensive and irrelevant.

RESPONSE: N.J.A.C. 11:4-35.4(a) requires that first time applicants for a viatical settlementís providerís license submit a schedule which lists 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 share of the corporation, directly or indirectly, has been subject in any jurisdiction during the prior 10 years. The Department believes that this provision is relevant and necessary for the protection of consumers. The Department notes that this requirement may offer information about the providerís operations including general treatment of viators and investors.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.4(c). The commenter stated that this provision requires the applicant to deposit with the Commissioner securities having a market value of $100,000 in satisfaction of the financial accountability requirement. The commenter stated that the practical effect of requiring a viatical settlement provider to deposit $100,000 worth of securities with the Commissioner prior to receiving a license will be to dramatically limit the number of providers in New Jersey. As a result, the viatical settlement market in New Jersey will lack competition at the expense of New Jersey residents. The commenter stated that a competitive viatical settlement market is the best way to guarantee that viators in New Jersey are paid top dollar for their policies. If additional states adopt such a requirement, it puts the company at a competitive disadvantage to companies which take the position that they donít have to obtain a license in any jurisdiction other than their home state.

RESPONSE: The Department does not believe that this requirement is too onerous. If a provider is unable to provide $100,000 worth of securities, then it raises serious doubt about its ability to adequately provide and service viatical settlement policies. This requirement is evidence of financial accountability and is consistent with comparable requirements on other licensees of the Department.

COMMENT: One commenter suggested that N.J.A.C. 11:4-35.4(c) should be revised to require the submission of an errors and omissions insurance policy with specified levels of coverage; a bond in some specified amount; a deposit of securities in some amount; or any combination of these as evidence of financial accountability.

RESPONSE: N.J.A.C. 11:4-35.4(c) references N.J.S.A. 17B:18-37 and 38 and N.J.A.C. 11:2-32 that set forth the type of deposits of securities with the Commissioner that are acceptable. These rules permit bills, bonds and notes issued by the U.S. Treasury; debt obligations of New Jersey; certificates of deposits etc. This is consistent with comparable requirements on other licensees of the Department. An errors and omissions insurance policy does not satisfy this requirement for the purpose of these rules.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.5(a)2 which requires proof that the applicant has passed Part 1 of the State (NJ) Licensing examination. The commenter stated that it needed to know the content of the exam in order to comment on whether it is appropriate for these licenses. The commenter urged recognition of the extensive experience of some of the nationsís most qualified brokers who may not come to the aid of New Jersey residents unless the examination is made available at a distance from New Jersey.

RESPONSE: The Department is amending N.J.A.C. 11:4-35.5(a)2 to permit individuals from another state to waive Part 1 of the exam if they can provide proof that they have passed their respective stateís life product portion of the life insurance agentís exam.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.5(b)4. The commenter stated that the definition of viatical settlement broker is independent of viatical settlement provider, and, therefore, a "list of viatical settlement providers with which the applicant is associated" is an inappropriate request. The commenter does not believe that a separate license for viatical settlement representatives was appropriate, based on N.J.S.A. 17B:30A-2e. The commenter stated that if the Department was going to have a separate license, each representative should be appointed by only one viatical settlement provider or viatical settlement broker. The commenter stated that it is reasonable to assume that a representative who works for only one provider can and will represent the interests of his employer. That individual should not be confused with a broker whose fiduciary responsibility to the viator will require independence and an ability to deal with all possible providers. The commenter suggested separating this section into two parts, one that addresses broker licensure, and a second dealing with representative licensure.

RESPONSE: The Department is amending N.J.A.C.11:4-35.5(b)4 to provide the applicant with the option of providing the certifications of current license status of the viatical settlement broker or a listing of viatical settlement providers that the applicant has appointed as a viatical settlement representative.

COMMENT: One commenter recommended that N.J.A.C. 11:4-35.5 be amended to include an individual, or a corporation, partnership, firm or association already licensed to sell life insurance in New Jersey, and therefore not required to apply for a separate license as a viatical settlement broker or a viatical settlement representative. The commenter stated that the requirements of N.J.A.C. 11:4-35.5 are redundant for a licensee already subject to the supervision of the Department, since such a licensee has already satisfied most of the requirements of these proposed rules.

RESPONSE: The Department does not believe that an amendment to N.J.A.C. 11:4-35.5 to include individuals, corporations, partnerships, firms, etc. that are already licensed to sell life insurance in New Jersey is necessary. It is important for the Department to be able to identify persons who are acting as viatical brokers and providers, and to obtain all information necessary to process their applications. Therefore, the requirements of N.J.A.C. 11:4-35.5 are critical to this process.

COMMENT: One commenter stated that in N.J.A.C. 11:4-35.8, the appointment requirements for viatical settlement representatives, should be amended. The commenter stated that the word "licensed" should be substituted in both places where the word "license" appears. Additionally, the commenter recommended that the Department provide for short-term appointments which may occur at frequent intervals in conjunction with single contracts involving substantial commissions. The structure of the rule should not allow for a "representative" to act as a de facto "broker," by obtaining and abandoning appointments at frequent intervals.

RESPONSE: The Department agrees with the commenter. The Department is amending N.J.A.C.11:4-35.8(a) by changing "license" to read "licensed." The commenterís concerns regarding the term of an appointment for viatical settlement representatives should be addressed in the contract agreement between the parties.

COMMENT: One commenter noted that, in N.J.A.C. 11:4-35.9(a), there is a typographical error in the first sentence, it should read "a viatical settlement contract" not "contact" as it presently reads.

RESPONSE: The Department agrees with the commenter and has amended this provision accordingly.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.9(a), which addresses the approval of contracts and disclosure statements and rights of rescission. The commenter stated that any rescission should be subject to repayment of all viatical settlement proceeds and any premiums, loans and loan interest to the viatical settlement provider. The commenter suggested that the right of rescission should run from the date of the viatical settlement contract, not from the receipt of proceeds. The commenter states that there are many problems associated with trying to unwind a transaction after it has closed and funds have been disbursed, including the detrimental affect on a consumer who might have purchased a viatical settlement policy.

The commenter suggested replacing the second sentence of this provision with language from the new NAIC Model Viatical Settlement Act. The suggested language states: "If the insured dies during the rescission period, the [viatical] settlement contract shall be deemed to have been rescinded, subject to repayment of all viatical settlement proceeds and any premiums, loans and loan interest to the viatical settlement provider."

RESPONSE: N.J.A.C. 11:4-35.9(b) is consistent with N.J.S.A. 17B:30A-7a(5) and 17B:30A-8c. Therefore, the Department does not believe that these provisions should be amended.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.10(a). The commenter stated that there is no statutory authority for the Department to prohibit New Jersey citizens from selling their property as set forth in this subsection. The commenter stated that there may be a variety of reasons why an individual may wish to do business with a viatical settlement provider rather than an insurance company and individuals should be allowed the freedom to deal with their personal property in any lawful manner they so choose. The commenter stated that it would be extremely difficult for a viatical settlement provider to analyze all of the factors in telling what type of accelerated death benefit rider or provision might be available to a policyholder or certificate holder. Providers may fear entering into contracts, which by all standards might otherwise be reasonable, because of a fear of falling under this provision. Additionally, the commenter stated that this provision appears to conflict with subsection (b), which notes that: providers and brokers shall obtain from viators a signed statement that the viator contacted their life insurer and that their policy does not include an accelerated death benefits clause; or that they have 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. The commenter stated that this last condition clearly should be an exemption to the prohibition set forth in subsection (a).

RESPONSE: The Department believes that N.J.A.C. 11:4-35.10(a) is necessary and appropriate for the protection of the viator. The Department is amending N.J.A.C. 11:4-35.10(a) by adding the following language at the end of this paragraph: "except as provided in (b) below." The Department believes that this amendment resolves the conflict between subsections (a) and (b).

COMMENT: One commenter objected to N.J.A.C. 11:4-35.10(b). N.J.A.C. 11:4-35.10(b) requires viatical settlement providers and brokers to 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. The commenter stated that this seems to be an unreasonable restraint on the rights of the New Jersey citizen. The commenter questioned if the Department contemplated a reciprocal requirement by insurers, who could be required to offer information on Viatical Settlements, before an individual can exercise accelerated death benefits. The commenter stated that this language is further confused by appearing to require that both provider and broker obtain the same documents from a viator. The commenter believes that the responsible party should be defined, rather than leaving it with both parties.

RESPONSE: Both parties have a responsibility for obtaining this documentation or verifying that it has been obtained. One party can obtain a signed statement from the viator and the other can obtain a copy as documentation.

COMMENT: One commenter objected to N.J.A.C. 11:4-35.10. The commenter stated that the waiver provision in this subsection is not clear as to its effect on the prohibition contained in subsection (a). The commenter stated that a viator who waives the option to contact the life insurer may not know whether the accelerated death benefit would pay more than the viatical settlement contract. The commenter disagreed with this type of requirement and noted that it is not contained in either the NAIC or NCOIL Models and to the best of its knowledge, is not found in any other state viatical law.

RESPONSE: The Department believes that the commenterís concern is addressed by its amendatory language to N.J.A.C. 11:4-35.10(a).

COMMENT: One commenter objected to the reporting requirements of N.J.A.C. 11:4-35.10(c). The commenter stated that the language in this provision seems to leave the viatical settlement provider or broker in the position of not knowing what the Commissioner may consider unreasonable or unjust. The commenter stated that there are many other factors that are considered in the pricing of a policy including market conditions dealing with the availability of policies and the return on other uses of capital. Those conditions fluctuate and therefore, what is an "unreasonable" pricing today may be totally reasonable tomorrow. The commenter urges the Department to clarify or delete this language which may cause many providers to leave the New Jersey market for fear of post-settlement regulatory review which would result in a negative judgment.

RESPONSE: The Department is amending N.J.A.C. 11:4-35.9(a) to clarify that the viatical settlement provider or broker shall file their methodology for determining proceeds along with their specimen contract. The approval of the viatical contract methodology is governed by N.J.A.C. 11:4-35.9. N.J.A.C. 11:4-35.10 prohibits a viatical settlement provider or broker from entering into a viatical settlement that provides payments that are unreasonable or unjust. In other words, it requires viatical settlement proceeds to be paid in accordance with the approved methodology for determining the viatical settlement proceeds as stated in N.J.A.C. 11:4-35.9.

COMMENT: One commenter expressed concern with N.J.A.C. 11:4-35.11. The commenter stated that, depending upon the financial structure of a provider and whether or not policies are resold or transferred to individuals or financial entities, a provider company may not have much of this information, particularly since this section calls for "all states in the aggregate." The commenter stated that most states do not require this type of reporting. Secondly, depending on the size of the provider company, the compilation of this detailed information will be extremely onerous and expensive.

RESPONSE: The Department believes that these reporting requirements are necessary for the protection of viators. There is a need for a mechanism to keep track of the viatical settlement transactions and to monitor the reasonableness of rates.

COMMENT: One commenter expressed concern with N.J.A.C. 11:4-35.11(a)1iii. The commenter stated that life expectancy is normally expressed in a range rather than a specific number of months.

RESPONSE: The Department is amending N.J.A.C. 11:4-35.2, the definition of "life expectancy," by substituting the phrase "mean life expectancy". The Department is also adding the term "mean" to "number of viators" in the definition of "mean life expectancy" which should clarify and address the commenterís concern.

COMMENT: One commenter believed that in N.J.A.C. 11:4-35.11(a)1vi, the estimate of the premiums should be as of the date of the viatical settlement contract. The commenter questioned whether the Departmentís use of the term "mean life expectancy" means "estimated life expectancy."

RESPONSE: The Department believes that the commenterís concern has been clarified by its amendments to the definition of "life expectancy."

COMMENT: One commentor stated that in N.J.A.C. 11:4-35.11(a)1xii and (a)2vii, the primary ICD Diagnosis Code may not be known to the viatical settlement provider and may not be available from the viator.

RESPONSE: The International Classification of Disease ("ICD") is critical information in determining the appropriate proceeds. The Department believes that the viatical settlement provider can obtain the ICD. The medical provider would provide this information for the viator.

COMMENT: One commenter expressed concern that in N.J.A.C. 11:4-35.11(a)2viii; 2ix; and 2x; the date of the death may not be known to the viatical settlement provider.

RESPONSE: The Department believes that the date of the death is obtainable and is necessary information. It is the viatical settlement provider's responsibility to acquire it.

COMMENT: One commenter expressed concern with N.J.A.C. 11:4-35.11(a)4, which addresses the number of polices that are reviewed and rejected by the provider. The commenter stated that typically a viatical settlement provider summarily rejects a large number of policies that do not meet its buying criteria. The commenter suggested amending this provision to be more specific by defining the terms "reviewed" and "rejected."

RESPONSE: The Department believes that the terms "reviewed" and "rejected" do not need definitions to explain their meanings. They have a plain meaning applicable to this rule.

COMMENT: One commenter expressed concerns with N.J.A.C. 11:4-35.11(a)5. The commenter stated that the term "secondary market" is not a defined term in N.J.A.C. 11:4-35.2 or N.J.S.A. 17B:30A-1. The commenter suggested that the term "secondary market" be defined in N.J.A.C. 11:4-35.2 "to mean the sale of a life insurance policy by a viatical settlement provider or any other entity that does not have an insurable interest in the life of the insured."

RESPONSE: The Department disagrees with the commenterís suggested definition of "secondary market." The Department also believes that the term "secondary market" is self-explanatory and does not need to be defined.

COMMENT: One commenter expressed concern with N.J.A.C. 11:4-35.11(a)7 which requires a study of mortality experience. The commenter stated that viatical settlement provider companies do not customarily keep this type of information and the expense of this analysis would be significant and result in lower payments to the viator. The commenter stated that the Department should note that the costs of recordkeeping may result in a diminishing market for the most desperate of viators, those with small policies on which they cannot continue to pay premiums because of illness. Extensive actuarial requirements will force the provider community to concentrate on policies of large face value or long duration. In the latter case, actuarial statistics may not be available for many years. The commenter believes that if the Department requires the information, it is properly obtained by the staff of the licensee and can be provided as part of an annual report, signed by the licensee, without requiring employment of an actuary.

A second commenter suggested deletion of this requirement because it appears to be an extension of requirements for a life insurance company. The commenter stated that viatical settlement providers frequently do not have the data to conduct such mortality studies.

RESPONSE: The Department does not believe that requiring a study of mortality experience signed by a member of the American Academy of Actuaries will diminish the market for viators. This is basic information and essential to the operations of the viatical provider.

COMMENT: One commenter suggested that in N.J.A.C. 11:4-35.12(b), the Department add after the word viator, the phrase "Unless otherwise instructed by the viator." The commenter stated that often the provider is instructed to pay third parties on behalf of the viator.

RESPONSE: The Department does not believe that the commenterís suggested amendment is in the best interest of the viator. The current transaction is structured in a more straight forward manner.

COMMENT: One commenter suggested that at the end of the first sentence in N.J.A.C. 11:4-35.12(b), the phrase "or trust account check" be added "in order to allow for payment by law firms that operate as escrow agents."

RESPONSE: The Department does not believe that this provision is necessary. The Department believes the payment of the proceeds by wire transfer to the account of the viator, or certified check, or cashier's check adequately addresses situations regarding the proceed payments.

COMMENT: One commenter stated that in N.J.A.C. 11:4-35.16(a), the words "to the viator" should be added between the words "provided" and "before."

RESPONSE: The Department agrees with the commenter and has amended this provision accordingly.

COMMENT: One commenter stated that proposed N.J.A.C. 11:4-35.16(b)2 requires that "the viator and the insured have provided prior written consent to the disclosure." The commenter suggested that this paragraph be replaced with the following: "Prior written consent to the disclosure has been provided by the viator or the insured, or both, depending upon whom the disclosure affects." Requiring the written consent of the viator for disclosure of information about the insured, or the consent of the insured for disclosure of information about the viator, is an unnecessary burden upon the party charged with obtaining the signature. The commenter stated that obtaining the signature of the party affected should be sufficient.

RESPONSE: The Department agrees with the commenter and has amended this provision accordingly.

COMMENT: One commenter stated that in N.J.A.C. 11:4-35.16(c), the phrase "a statement," or other appropriate terminology should be added between the words "include" and "advising."

RESPONSE: The Department agrees with the commenter and has amended this provision accordingly.

COMMENT: One commenter stated that in N.J.A.C. 11:4-35.17(a), concerning prohibited practices, the language "at or before the time of the viatical settlement transaction pursuant to N.J.A.C. 11:4-35.16(b)," should be deleted. The commenter believes that it may be necessary to obtain a viator's consent at some point after the transaction has closed, in order to obtain medical records or carry out some monitoring of the policy.

RESPONSE: The Department agrees with the commenter and has amended this provision accordingly.

COMMENT: One commenter stated that N.J.A.C. 11:4-35.17(d) provides that 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. The commenter suggested that subsection (d) be deleted and replaced by the following: "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, unless the viator consents in writing to such representation". The commenter stated that the written consent shall include a verification that he or she is viaticating the policy of his or her own free will and volition, and that the producer or individual receiving commissions from the policy has thoroughly explained to the viator the effects of, and alternatives to, viaticating the policy.

RESPONSE: The Department notes that the commenterís suggested language requires a written consent that the viator is doing this of his or her free will and that the effects of viaticating the policy have been explained. The Department believes the provision as proposed, without the suggested amendment, best protects the viator.

COMMENT: One commenter suggested amending the language in N.J.A.C. 11:4-35.17(g) to read: "No person shall enter into a viatical settlement contract the subject of which is a life insurance policy that the person knows was obtained by means of a false, deceptive, or misleading application for the life insurance policy." The commenter stated that this rewording puts the "knowledge requirement" in the correct place.

RESPONSE: The Department agrees with the commenter and has amended this provision accordingly.

Federal Standards Statement

A Federal standards analysis is not required because adopted N.J.A.C. 11:4-35 is not subject to any Federal requirements or standards.

Full text of the adoption follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from the proposal indicated in brackets with asterisks *[thus]*):

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.

. . .

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

. . .

11:4-35.3 General licensing requirements

(a) and (b) (No change from proposal.)

(c) Individual applicants seeking licensure as viatical settlement brokers or viatical settlement representatives shall be required to pass Part 1 of the State licensing examinations, "Life-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 *or can provide proof that they have passed their stateís life product portion of the life insurance agentís examination.*

11:4-35.5 Viatical settlement brokerís or representative's license application

    1. A first time applicant for an individual viatical settlement brokerís license or viatical settlement representativeís license shall submit the following:

    1. (No change from proposal.)
    2. Proof that the applicant has passed Part 1 of the State licensing examination, "Life-General Product Knowledge," required for a life producer *or proof that the applicants have passed its stateís life product portion of the life insurance agentís examination*;

3. Ė 8. (No change from proposal.)

    1. A first time applicant for a viatical settlement brokerís license which is a corporation, partnership, firm or association shall submit the following:
    2. 1. through 3. (No change from proposal.)

      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]* *or* a list of viatical settlement providers with which the applicant is *[associated]* *appointed as a viatical settlement representative*;

      5. through 8. (No change from proposal.)

    3. (No change from proposal.)

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 *[license]* *licensed* viatical settlement provider or

*[license]* *licensed* viatical settlement broker.

1. and 2. (No change from proposal.)

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

(a) A person shall not use a viatical settlement *[contact]* *contract* or provide to a viator a disclosure statement form in this State unless filed with and approved by the Commissioner. *Contract filings shall include the methodology for determining the viatical settlement proceeds.* 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 *, or the methodology for determining proceeds* 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.

    1. (No change from proposal.)

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

    1. 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 *except as provided in (b) below*.

(b) and (c) (No change from proposal.)

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 *to the viator* 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. (No change from proposal.)
    2. *[The viator and insured have provided prior]* *Prior* written consent to the disclosure *has been provided by the viator or the insured, or both, depending upon whom the disclosure affects*.

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

    1. (No change from proposal.)

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 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) through (f) (No change from proposal.)

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