Regulation and life settlements are on the table at Queen’s Park

FSCO Panel hears about life settlement issue

An “Expert Advisory Panel” appointed by the Honourable Charles Sousa, Minister of Finance, is reviewing the mandate of the Financial Services Commission of Ontario (FSCO) and on July 30th the Panel held a two-hour consultation meeting at Queen’s Park with members of the life & health insurance sector. I attended with two colleagues.


The advisory panel’s members are:

  • George Cooke – former president and CEO of The Dominion of Canada General Insurance Company, and current chair of the board of directors of OMERS Administration Corp.
  • James Daw – former Toronto Star personal finance columnist who has written extensively about all facets of Ontario’s financial system.
  • Lawrence Ritchie – Osler, Hoskin & Harcourt LLP partner and former vice-chair of the Ontario Securities Commission.


LISAC logo stack-smallest copyParticipating groups included: Life Insurance Settlement Association of Canada (LISAC); Canadian Life and Health Insurance Association (CLHIA); Financial Advisors Association of Canada (Advocis); Canadian Association of Financial Institutions in Insurance (CAFII); Independent Financial Brokers of Canada; and Sun Life. I was there as President of LISAC, along with David Hughes, Executive Director and Andrew Roman, legal counsel.

The Panel held a broad ranging discussion and explored many issues, from FSCO’s resources and regulatory requirements to “rule making power” and fraud. There was much debate over the pros and cons of “harmonization” and “self-regulation” by industry groups, as well as the merits of rule making versus guidelines such as those practiced by the Ontario Superintendent of Financial Institutions. Throughout, the Panel reiterated that the overriding goal was that their recommendations must support and reflect what is in the best interests of the consumer.



James Daw was particularly interested in the issue of fraud and whether a fraud compensation fund might be advantageous. I listened with interest as I believe this question is very relevant to the overarching issue of regulations – particularly in conjunction with the insurance industry’s statements and hyperbole about “serious risks” of fraud related to life settlements.

I listened … and listened. Waited. After two hours of open discussion, nobody – not one representative of the life insurance industry – had anything to say about their longstanding allegations of serious risks with life settlements. It was as if they were avoiding opening up a discussion. So in the end, I raised the issue.

I told the Panel that LISAC’s primary focus was the subject of life settlements and that we believe FSCO has failed the people of Ontario, especially seniors, for more than 15 years. I said any discussion of regulations must include what is conspicuously absent in Ontario’s financial services sector – a well-regulated secondary market for life settlements. It deprives the owners of life insurance from receiving fair market value for their policies. I reiterated the significant benefit life settlements are providing for seniors in the US, and other countries around the world, and how Ontario was perpetuating an egregious disservice to its more than two million seniors.

I referenced a letter dated July 13, 2001, written by then CEO of FSCO, Dina Palozzi, which concluded, in part, “there is a consumer demand for viatical settlements and that this demand will grow with the demands of an aging population.” The letter further stated, “The Red Tape Reduction Act, 2000, Schedule G, included amendments to section 115 and 121 of the Insurance Act … and the amendments open the way for viatical settlement companies to operate in Ontario.” I pointed out to the Panel that the glaring 15 year gap between political intent and no action has meant that billions of dollars rightfully belonging to seniors have continued to flow to insurance companies. I also emphasized that opposition to life settlements rests squarely with the insurance companies, not the qualified life underwriters, brokers and financial planners.

The panel listened. And if note taking is any indication of interest then I believe they understood, not only the magnitude of the issue but also the ramifications of FSCO’s neglect to follow through.

Serious risk?

true-or-false-question-blackboard-picture-87287848Insurance companies have been propagating the myth of “serious risk” for at least two decades. And it is a myth. Back on November 1, 2000, Mark Daniels, representing the CLHIA, went before a legislative committee addressing Bill 119, the Red Tape Reduction Act and claimed the viatical and life settlements market “has been characterized by widespread fraud and abuse…” It was an irresponsible, misleading, false statement. And yet, it  delayed action for 15 years. Worse, today Canadian insurance representatives continue to provide false witness to the truth. The truth is, life settlements are good for everyone, except life insurance companies.

The US has a thriving, well-regulated life settlement industry that they have developed over the last two decades, while Ontario has done nothing, even though the Province’s political will and legislative action has recommended establishing a life settlement industry.

In the US, on May 4, 2015, the newly appointed Massachusetts Insurance Commissioner, Dan Judson, stated:

“there are no records of consumer complaints against anyone associated with a life settlement transaction in the commonwealth of Massachusetts.”

Also, according to the National Association of Insurance Commissioners (NAIC):

“there have been only two closed consumer complaints nationwide involving life settlements since 2012. This is in stark contrast to the more than 8,000 complaints against insurance carriers in 2014 alone for delays in paying claims.”

False statements by Canadian insurance companies should not distract from the greater benefit of a well-regulated life settlement market for all Ontarians.

Are we regulating trafficking or theft?

fox.henhouse.1I suggested that in the Panel’s deliberations of FSCO’s “new” mandate regarding regulations that they ensure FSCO oversees and supports a well-regulated, secondary market for life settlements. FSCO should not relinquish its regulatory role to a “self-regulation organization” (SRO), particularly with the insurance companies or surrogates having a prominent role. As I have said before, that is akin to letting the fox regulate the hen house.

I reminded the Panel that for decades insurers have opposed the repeal of section 115 of the Ontario Insurance Act, which uses the pejorative term “trafficking” in reference to the sale and purchase of an in force policy. I consider the much bigger fraud in Ontario to be the practice of insurance companies, through the contractual agreement of a life policy, restricting policyholders to a buy back option (cash surrender value) that is far below the fair market value of the asset, at least four times lower (based on a study of 9,002 policies).

Self-interest vs consumers’ interest?

weights-4-as1108Ontario seniors have been deprived of their rightful access to the fair market value in their life insurance policies for decades and today we have an opportunity to rectify this wrong. And based on my observations at the Expert Advisory Panel session, I am optimistic that the panel understands and that they will address this issue in their report to the Minister of Finance.

FSCO’s past failure to deal with this obvious void in Ontario’s financial services must not be allowed to continue. FSCO’s regulatory mandate should not, in any way, be based on insurance industry innuendo nor should the panel consider a self-regulation organization (SRO) that can can be controlled or influenced by the same people who have shown the enormity of their self-interest over the best interests of the consumer – and the Government of Ontario.