The option of buying back policies to stem life settlements is putting insurers at loggerheads with their mission. Following such a path may jeopardize their reputations, warns Lyne Duhaime, president of CLHIA-Quebec.
If adopted in its current version, Quebec’s Bill 150 would allow policyholders to transfer policies to third parties. Under one of two provisions to be added to the Quebec Civil Code, insurers will be permitted to match the offer.
Not only will the changes regulate the life settlement market to prevent speculation, Duhaime points out, but insurers will also be allowed to buy back a policy for the price offered, within a given period.
“The goal was to block the trafficking of policies; we are glad that the government understood this. All the same, the proposed amendments to the Civil Code ushered in by Bill 150 create a very awkward scenario. Insurers’ priority is to ensure that insurance policies remain in force. But the bill puts the insurers in the unenviable position of having to buy back a policy despite their firm stance against this practice,” Duhaime explains.
May impact the value of estates
This provision may also decimate estate value. She gave the example of an elderly person who wants to sell her $250,000 policy to a third party, who offers $50,000. The insurer buys the policy back at that price to protect its market. As fate would have it, the insured dies the next day…
“The heirs will discover that the insurer bought a policy for $50,000 that had been worth $250,000. The estate is left with nothing. Arguing with the insurer, which, with no ill intent, just wants to conserve its market by this action, would be pointless.”
This situation may have great repercussions on the reputation of the insurer and the industry. Stories like this make the headlines, Duhaime underlines, mentioning the Samuel Archibald case.
The problem is that if the insurer does not buy back the policy, it will lose the policy to a third party. “Something needs to be adjusted there,” she says. Duhaime added that she is currently trying to convince the provincial government that life settlements deserve more than two articles in the Civil Code.