就比較法研究以言，本文擬考察保險單貼現商品發源及蓬勃之美國及英國 對投資型保險規範之相關法律。除依國別為個別研究外，並比較各國制度之差異 與優劣，尤其各國對保險單貼現商品之法律規範架構與規範內容，尤係研究與比 較之重點。
至於問題解決導向之方法，則於本研究之後段使用。如前述，我國現行保 險單貼現商品管理之法規，付之闕如，監理法規無論係保險法規或證卷法規均有 不足。本研究首就我國現行法規存在之問題為詳察；次就各該問題於所研究之他 國制度中，找尋一至數個可行之解決之道；最末，配合我國現行保險單貼現商品 內容與市場實況，於數可選擇之方案中，擇於吾國最適採取者，提出立法建言。
於方案選擇過程中，少量之成本效益分析方法，亦將使用。
五、 結果與討論
Regulating Viatical Settlement Contracts in Taiwan -- Traditional Way or Modern Way?
Kuan-Chun Johnny Chang
I. Introduction
The viatical settlement is an investment contract pursuant to which an investor acquires an interest in the life insurance policy of a terminally ill person, originally an AIDS victim, at a discounted face value, depending upon the insured's life expectancy.14 When the insured dies, the investor receives the benefit of the insurance.15 The investor's profit is the difference between the discounted purchase price paid to the insured and the death benefit collected from the insurer, less
Associate Professor, National Chengchi University College of Law; S.J.D. Georgetown University Law Center.
14 Liza M. Ray, The Viatical Settlement Industry: Betting on People's Lives Is Certainly No “Exacta,”
17 J. Contemp. Health L. & Pol'y 321, 322 (2000).
15 Id, at 322.
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transaction costs, premiums paid, and other administrative expenses.16 On the other hand, it helps the terminally or chronically illed person by providing him/her immediate lump-sum cash payment of a fraction of policy’s face value with no restriction on how the money can be spent.17
The viatical industry was born in the 1980s in response to the Acquired Immune Deficiency Syndrome (AIDS) crisis.18 In that era, AIDS was a rapidly fatal disease whose victims usually died within a few months of their diagnosis so that patients’
life expectancies were short and relatively predictable. Since numbers of AIDS sufferers were single gay men who had little need to leave their insurance proceeds to beneficiaries, but were in great need of an infusion of income to pay for their care, they were attractive subjects for viatication.19 Although the industry enjoyed dramatically growth, the essential characteristics of the viator population changed.
The development in medicine made AIDS a treatable, if not curable, disease and AIDS patients' lives could be continued for years on a regimen of antiviral
“cocktails.”20 “They no longer were the sure bet for rapid demise that had been so attractive to the early viatical settlement companies”.21 Meanwhile, the viatical settlement providers found new markets for their product in growing chronically-illed and elderly persons, for instance, people suffering from cancer, Alzheimer's disease, and other progressive illnesses, and weak elderly men and women in need of funds for assisted living, who consider viatical settlements a new source of income.22 Morover, affluent older people having purchased life insurance when their children were young but no longer felt the need to provide for them might sell their policies in exchange for at least a partial return from their policies.23 By the late 1990s, viatical marketers focused heavily on these new target populations of terminally and chronically ill elderly, and AIDS sufferers comprised only a small percentage of viators.24
Although the original purpose of the viatical settlements is undoubtedly positive, several issues associated with such product need to be addressed. These issues
16 Alexander D. Eremia, Viatical Settlement and Accelerated Death Benefit Law: Helping Terminal, But Not Chronically Ill Patients, 1 DePaul J. Health Care L. 773, 777 (1997).
17 Ffiona M. Jones, The Viatical Settlement Industry: The Regulatory Scheme and its Implications for the Future of the Industry, 6 Conn. Ins. L.J. 477, 479 (2000).
18 Joy D. Kosiewicz, Death for Sale: A Call to Regulate the Viatical Settlement Industry, 48 Case W.
Res. L. Rev. 701, 703 (1998).
19 Anna D. Halechko, Viatical Settlements And The Elderly: Potential Advantages And Hidden Dangers, 6 N.Y. City L. Rev. 135, 138 (2003).
20 Id.
21 Id.
22 Miriam R. Albert, The Future of Death Futures: Why Viatical Settlements Must be Classified as Securities, 19 Pace L. Rev. 345, 357 (1999)
23 Joseph B. Treaster, Death Benefits, Now for the Living, N.Y. Times, Sept. 27, 1998, § 3, at 1.
24 Halechko, supra note 6, at 139.
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include the ethical issue (i.e. lack of insurable interest and privacy), the conflict of interest incurred by the imbalance of bargaining power between the viator and viatical settlement providers, the fraud on the investors. Nevertheless, the preliminary yet more fundamental issue that should be tackled before addressing those issues is whether the viatical settlement should be categorized as “insurance” so as to subject to the insurance regulation or as the “securities” pursuant to the securities regulation.
In the U.S., while Securities and Exchange Commission (SEC) has expressed concern over adequate regulation on viatical settlements, courts have never reached consensus on the question of whether viatical arrangements should be considered
“securities” and thus subject to the control of the.25 If they are deemed to be securities, the vitical provider would be required to make disclosure of certain information regarding risks and performance of the investments, so that potential buyers would have the capability of making informed decisions.26 On the other hand, the National Association of Insurance Commissioners (NAIC) has developed the Viatical Settlements Model Act (hereinafter Model Act) 27 and Viatical Settlements Model Regulation (hereinafter Model Regulation)28 to guide states in their supervision of the viatical industry.
Nevertheless, the viatical settlement are virtually unregulated under Taiwanese law due to the same difficulty in either categorizing it as insurance subject to the regulation of Insurance Act or as the “securities” to be supervised under Securities and Exchange Act. Such dilemma cause the Financial Service Commission (FSC) has neither the authority to either supervise firms selling the viatical settlement, nor does it capable of assisting investors to file claims against viatical settlement providers. This awkward situation reflects unsettled issues regarding the regulation of viatical settlements including the nature of viatical settlements and the appropriate regulatory scheme.
Hence, this note begins with the attempt to identify the nature of the viatical settlements. It is the notion of this research that only after the nature of such product is ascertained can applicable laws and regulations be determined. Laws and regulations of the U.S. will be introduced and discussed. After the nature of the viatical settlement and proper regulation to be utilized has been clarified, various regulatory issues would be addressed. The ultimate goal of this research is to,
25 Elizabeth L. Deeley, Viatical Settlements are not Securities: Is it Law or Sympathy? 66 Geo. Wash.
L. Rev. 382, 383 (1998).
26 Anna D. Halechko, Viatical Settlements: The Need For Regulation to Preserve the Benefits While Protecting the Ill and the Elderly from Fraud, 42 Duq. L. Rev. 803, 813(2004).
27 Viatical Settlements Model Act (Nat'l Ass'n Ins. Comm'rs 1993) (amended 2009).
28 Viatical Settlements Model Regulation (Nat'l Ass'n Ins. Comm'rs 1994) (amended 2004).
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through comparing the system of various countries, propose an optimal regulatory system for viatical settlements in Taiwan.
II. Viatical Settlement – How Does it Work?
(I) Meaning of the Viatical Settlement
A viatical settlement is a contractual agreement by which a terminally-ill individual can sell his life insurance policy to an investor who pays the insured a discounted face value and then collects the policy benefit upon the insured's death.29 The investor's return comes from the difference between the death benefits ultimately paid, ordinarily the policy's face value, and the discounted amount paid to the policyholder.30 Originally, a viatical settlement is a way in which a dying person can acquire access to resources to pay for living and medical expenses in his last days of life.31 “This noble-sounding purpose, however, has been complicated and often corrupted by the actions of over-zealous entrepreneurs who are willing to take advantage of the most vulnerable in society in order to increase profit”.32 In recent years, viatical settlements have been marketed to the chronically and terminally ill, and the elderly also have become targeted as a major market for this financial vehicle.33
(II) Parties Involved
The key parties in a viatical settlement are the insured, known as the viator, the insurance company who issued the policy, and the viatical settlement provider (hereinafter the VSP) who purchases the policy from the insured.34 However, in some cases, the VSP is actually a broker who merely matches the viator with an investor who will actually purchase the policy.35 As the investment market in viaticals has grown, the roles of provider and broker have become blurred.36 The viatical provider may also sell beneficiary and ownership rights to investors.37 Many providers purchase policies in order to resell them to investors or merge them into
29 North Carolina Dept. of Ins., A Consumer’s Guide to Viatical Settlements 1 (2002) available at http://www.ncdoi.com/_Publications/Consumer%20Guide%20to%20Viatical%20Settlements_CLI1.pd f.
30 Albert, supra note9, at 348.
31 Id.
32 Anna D. Halechko, Viatical Settlements: The Need for Regulation to Preserve the Benefits While Protecting the Ill and the Elderly from Fraud, 42 Duq. L. Rev. 803, 804 (2004).
33 Lawrence A. Frolik, Insurance Fraud on the Elderly, Trial, Jun. 2001, at 48.
34 Consumer’s Guide, supra note 16, at 2.
35 Albert, supra note 9, at 349.
36 Halechko, supra note 19, at 804.
37 Consumer’s Guide, supra note 16, at 2.
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large investment pools, which are then sold in fractionized interests or shares.38 These mutual funds of viaticated policies or “death futures” have become popular investment vehicles.39
(III) Framework of the Viatical Settlement A. Types of Viatical Settlement Providers
As briefly mentioned earlier, there are three types of VSP: funding, brokerage and syndicate companies. The first type of VSP which buys life insurance policies directly from terminally ill people, using either private funds or money received through the sale of company stock, holds all the rights to the insurance policy and act as the designated beneficiary of the policy and assume the attendant portfolio risk.40 The viatical settlement industry deems these transactions “nonbrokered”
because the VSP purchases the policies directly.41 Such type of VSP is also known as funding companies.42
The second type of viatical settlement company acts as a middle person or broker who matches a group of potential buyers with the viators who have a life insurance policy available for sale, rather than directly purchasing the policy itself.43 A broker often makes the initial contact with the viator, who may not even be aware of the true purchaser of his policy.44 The majority of VSP in the viatical settlement industry fall into this category.45 The broker does not own the insurance policy; instead, the settlement contract typically entitles the broker to a commission usually 4 to 6 percent of the death benefit.46
The third type of VSP, a syndicate company, is “a species of a funding company that ‘syndicates’ the sale of policies to pools of individual investors who then acquire fractionalized interests in a policy or a group of policies”.47 These companies place their emphases on creating the secondary markets so as to hedge the risks inherent in a viatical settlement transaction.48 The syndicators receive a fee for setting up the
38 Kosiewicz, supra note 5, at 712.
39 Albert, supra note 9, at 350-51.
40 Shanah D. Glick, Comment, Are Viatical Settlements Within the Regulatory Control of the Securities Act of 1933?, 60 U. Chi. L. Rev. 957, 957 (1993).
41 Dave Luxenberg, Why Viatical Settlements Constitute Investment Contracts Within the Meaning of the 1933 & 1934 Securities Acts, 34 Willamette L. Rev. 357, 360 (1998).
42 Jones, supra note 4, at 481.
43 Id.
44 Halechko, supra note 19, at 805.
45 Pamela Sherrid, Enriching the Final Days, U.S. News & World Rep., Aug. 21, 1995, at 59.
46 Luxenberg, supra note 28, at 361.
47 Jones, supra note 4, at 481.
48 Kosiewicz, supra note 5, at 712.
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sale and assume no portfolio risk.49
One such market involves ‘fractionalizing’, in which a company facilitates ‘the sale of life insurance policies from (the patient) to investors at a discount’. These companies sell fractional interests in the patient's insurance policy to retail investors…Fractionalizing spreads the risk among investors and allows each investor to have an interest in more than one life insurance policy.50
B. Factors Determining How Much the Viator Receives
Several factors determine the amount a purchaser will pay a viator for his policy.
The most important factor, of course, is the projected life expectancy of the viator as determined by a physician as investors’ risk and return depends primarily on the date of the viator's death, and, to a lesser extent, on the speed with which the insurance company is notified and ultimately pays out on the policy.51 Usually, life insurance policies covering individuals with grave illnesses and shorter life expectancies can be expected to produce much larger viatical settlement offers than similar policies covering healthy individuals.52 Other factors include “prevailing interest rates, premium obligations, credit-worthiness of the insurance carrier, and any outstanding loans against the policy”.53 In ordinary case, the amount the viator expect to receive in the secondary market depends on a range of factors is generally more than the policy’s cash surrender value and less than the net death benefit.54
III. Regulatory Issues of A Viatical Settlement
There are several regulatory issues imbedded in viatical settlement transactions, including ethical issues, conflicts of interest, confidentiality concerns, and fraud, all of which should be disclosed as risk factors to investors in viatical settlements.
(I) Ethical Issues
Owing to the complexity of the viatical settlement transaction, it poses some dangers for the viator, who may not be aware initially that he is dealing with a conglomerate of businesses rather than with an individual.55 The major imbalance of
49 Id.
50 Id.
51 Jones, supra note 4, at 481; Albert, supra note 9, at 348.
52 Consumer’s Guide, supra note 16, at 2.
53 Jones, supra note 4, at 482.
54 Financial Industry Regulatory Authority, Seniors Beware: What You Should Know About Life Settlements 2 (2011) available at
http://www.finra.org/web/groups/investors/@inv/@protect/@ia/documents/investors/p125848.pdf.
55 Halechko, supra note 19, at 805.
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the bargaining between the viator and the VSP and his associates creates the likelihood for abuse.56 Because of his/her illness, the viator may not have the time, energy or motivation to shop around for the best payment.57 Nor may the viator be informed that he/she is forfeiting all rights to the policy for himself and his former beneficiaries.58 Time is precious to the viator, so issues may arise if the payment is delayed or some other problem occurs, and he is unable to contact the VSP.59 In the case where VSPs serves as a broker, by misinforming a viator, VSPs may induce a viator to settle with a purchaser that, in the end, will not be able to perform as promised.60 Marginally solvent or insolvent VSPs may also compound the harmful effect of this misinformation by luring viators away from opportunities to settle with solvent VSPs.61 Even for a healthy person, the litigation arising from such misrepresentation would be both annoying and time-consuming.62 For a terminally ill person, it would not only underscore an immeasurable personal tragedy, but would also probably not be financially or practically feasible.63
(II) Conflicts of Interests
The viatical settlement industry is subject to conflict of interest problems that pit the agendas of others against what may truly be in a viator's best interest. Given that VSP is financially justified to find viators who will predecease their life expectancy, the evaluation of a viatical application includes an examination of the quality of the viator's medical care; the lower the quality of care, the more quickly the viator is likely to die.64 That is to say, viatical firms have strong financial incentives to discourage or prevent viators from participating in experimental or life-prolonging therapies.65 Thus, the clearest potential conflict of interest in the viatical settlement industry arises when health professionals and care providers ally themselves with viatical settlement firms.66 “The concern stems from a caregiver who becomes financially linked to a venture that ultimately benefits from the viator's death, with the
56 Andrew B. Wright, Idaho at A Crossroads: Choices for Regulating Viatical Settlement, 39 Idaho L.
Rev. 179, 197 (2002).
57 Miriam R. Albert, Selling Death Short: The Regulatory and Policy Implications of Viatical Settlements, 61 Alb. L. Rev. 1013 (1998).
58 Kosiewicz, supra note 5, at 705.
59 Halechko, supra note 19, at 806.
60 Bernard A. Jacobs, Viatical Settlements in Montana: New Legislation Serves the Terminally Ill, 59 Mont. L. Rev. 81, 83 (1998).
17 and some physicians request direct commissions for referring viators to viatical settlement firms, the potentiality for these conflicts of interest must at least be the viator's medical records and may even intrude upon the viator's privacy directly by phoning or visiting him at home, ostensibly to see how he is doing but actually to determine that he is still alive.70 Even though in most viatical settlements, the viator releases his or her medical records to the VSP under the condition that a confidentiality provision is added to the agreement, at least some of the viator's specific medical history will need to be disseminated to potential investors as part of the necessary, albeit, macabre, marketing of the policy.71
(IV) Fraud
The most common type of fraud lies in that disingenuous providers and brokers deceive good-faith viators and investors. The primary occasion where a viator is defrauded is by receiving payment that is far below the present value of his policy.72 This is because VSPs deal with thousands of proposed viatical settlements and have the experience in pricing these settlements, but the terminally ill are likely to have never sold a life insurance policy before and are, therefore, completely inexperienced and ignorant in evaluating its true worth.73
There are various schemes have been perpetrated by VSPs to solicit investors in a fraudulent manner, often from the vulnerable elderly population. For example, in
67 Id.
68 Pamela Sherrid, Enriching the Final Days, U.S. News & World Rep., Aug. 21, 1995, at 56.
69 Albert, supra note 9, at 365-66.
70 Halechko, supra note 6, at 137.
71 Albert, supra note 9, at 366.
72 Halechko, supra note 19, at 812.
73 Wright, supra note 43, at 196.
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