If the Quebec government’s Bill 150 passes, policies issued more than two years ago can be assigned to a third party. Insurers may then match the purchase offer.
Reviled by many insurers, life settlements are when insured persons who no longer want to hold their policy surrender it to a third party at a market value determined by an independent appraiser.
The third party must not have an insurable interest in the insured’s life. Many insurers forbid advisors from engaging in this practice, viewed with a jaundiced eye as being a bet on the time of death of an insured, or as inviting speculation. In fact, life settlements are illegal in several provinces, including Ontario. In Quebec the practice has always fallen into the legal grey zone.
The Quebec division of the Canada Life and Health Insurance Association (CLHIA-Québec) wanted to ban life settlements. President Lyne Duhaime told The Insurance and Investment Journal that the current proposal does not reflect the industry’s wishes.
To complete a life settlement, the insured must transfer the policy to a third party. Yet the two proposed changes to the Québec Civil Code will deter speculative transactions because insurers will be able to match third-party offers.
“Provisions on assignments were already set out in the Civil Code. Bill 150 circumscribes and controls the practice to avert speculation. The articles introduce a grace period and new restrictions that protect against speculation, not only for the general public but also for more vulnerable individuals, be they elderly, ill or in a precarious financial situation,” says Evelyne Verrier, attorney and partner at Lavery.
Striking a balance
Bill 150 aims to strike a balance between a total ban and an exit hatch for insured who can no longer pay their premiums, Verrier explains. “Encouraging speculation and preventing all assignments are the two extremes. Insurers were asking for a total ban. This isn’t happening. If the insurer wants to buy back the policy, it can. This represents a good compromise,” she says.
La Financière Groupe Besner, a Quebec firm that has been offering life settlements at a discount for the past few years, is eagerly awaiting the proposed regulation. It does not see why insurers should object to it. “The insurer will have a right of first refusal,” Jean-Sébastien Besner, CEO of Groupe Besner, told The Insurance and Investment Journal in an interview. “Insurers may reject a purchase offer made within two years of the issuance of a policy and refund the premiums to the insured, or may equal my offer made more than two years later.”