The Emergence of a Viatical Industry in Ontario

THE EMERGENCE OF A VIATICAL INDUSTRY IN ONTARIO

January 28, 1997

Last week the Ontario government released its "Cut the Red Tape" book. One of the recommendations put forward in this book permits the establishment of viatical companies within Ontario.

Viatical companies buy a person's life insurance policy at a discount. In exchange for anywhere from 30 - 80% of the face value of the policy, a terminally ill person names the viatical company as the beneficiary of the policy. On that person's death, the company receives the full face value of the life insurance policy. Viatical companies have proliferated in the United States and now exist in four Canadian provinces. The four provinces in Canada which permit viatical companies do not regulate them, while in the United States the viatical industry has recently begun to regulate itself.

During the same week, the results of a feasibility study commissioned by the Ministry of Health to answer the question "Is there An Opportunity for A Non-Profit Viatical Settlement Company in Ontario?" were presented to the Ministry's Advisory Committee on HIV/AIDS by consultant John Jordan.

This study found that because the insurance industry has not developed and promoted a strong living benefits program, a gap has been created which for-profit viatical companies are eager to fill. A "living benefit" is a cash payment on a life insurance policy made by the company to a policyholder who is terminally ill while that person is still alive. The cash payment is then deducted from the face value of the policy when the person dies.

Although the Ontario Insurance Commission has developed "recommended practices" regarding living benefits programs, these practices are not mandated, and most insurance companies fall well below the standards set out by this document. For example, the maximum cash payouts tend to be very low (maximum $25,000 regardless of the face value of the policy) and many insurance companies do so little to publicize to policy holders the option of living benefits as to appear to be discouraging it. The inability of the insurance industry to regulate practice regarding living benefits has created a climate favourable to viatical companies.

If implemented, the "Cut the Red Tape" recommendation to permit viatical companies to establish themselves in Ontario will give Ontario consumers two choices, neither of which are optimal:

    • to accept a living benefits package from their insurer which may be below the standards of the OIC's recommended practices, or
    • to do business with an unregulated viatical company.

The steering commitee which oversaw the Ministry of Health's feasibility study recommended that the Ontario Insurance Commission:
    • mandate insurance companies to comply with their Recommended Practices guidelines, and
    • permit, and establish regulation for, viatical settlements in Ontario.

Without mandating practice guidelines for the insurance industry regarding living benefits, vulnerable people will be forced to use the viatical option. Without regulation, viatical companies are able to take advantage of terminally ill people who are in financial need and unable to accesss reasonable living benefits through their life insurance. Ontario has the opportunity right now to become the first province in Canada to establish a regulated viatical industry. This action would certainly benefit people with terminal illnesses. Preferable however, would be a mechanism for mandating industry practice guidelines for living benefits. The AIDS Committee of Toronto urges the government to take advantage of the opportunity created by the "Cut the Red Tape" document to regulate viatical companies and revisit the role of the insurance industry and living benefits.