Investors legally buy life insurance policies from seniors, or even at the end of their life, taking advantage of the fact that Quebec is the last province not to regulate what many refer to as the “secondary insurance market. life “.
Jean-Sébastien Besner does not hold any license from the Autorité des marchés financiers (AMF), an organization which oversees the insurance sector. Never mind, the businessman – specializing in the sale and purchase of pharmacies – has been able to buy back “between 50 and 100” life insurance policies over the past 10 years, he told the To have to.
At the head of Groupe Financière Besner, he says he does not “play at the casino or speculate on the death” of anyone. “It’s a business decision. When I receive a file, I make calculations based on the life expectancy of the insured, the amount of the premium, the death benefit and a performance objective. And from that point on, I am able to say how much I can offer him for his insurance. “
This secondary life insurance market – also known as a “viatic agreement” or “life settlement” – refers to the fact that an insured sells his policy to a third party that is foreign to him. The purchaser of the insurance policy – who becomes its owner and beneficiary – therefore pays the premiums. And it is he who collects the amount of the policy upon the death of the insured.
“In my case, I establish agreements with the families of [assurés qui vendent leur police] », He assures us. He cites the example of a $ 1.1 million policy acquired in recent years. “If the insured dies during the first six years of the agreement, the family receives 20% [de la valeur du versement]. Then, its share drops to 10% for the next three years and to 5% thereafter. “
Apart from Mr. Besner, The duty identified six American and Ontario companies that would be active in the province: Perisien Life Settlements, Prosperity Life, the International Society for Universal Settlements, Aequum Regulations Vie, Canadian Life Settlements and Sinclair Ventures.
On its website, Canadian Life Settlements states as a requirement that policyholders who wish to sell their policy are “over 70 years of age” and that their policy has “a total death benefit (face value) of at least 100,000 dollars ”.
However, Quebec is the only Canadian province not to regulate this secondary market. Besides Saskatchewan – which has passed a law that is not yet in force – the other provinces and territories prohibit or regulate the buy-back of life insurance for anyone who is not a legitimate insurer or a duly authorized agent.
Canadian insurance companies strongly denounce the existence of this market. In October, Manulife initiated representations to the Government of Quebec. In the register of lobbyists, it is stated that its purpose is “to prohibit the resale by a beneficiary of life insurance policies to an independent third party for speculative purposes”, since this “trade represents an economic and fiscal risk” for the “most vulnerable people”.
“Here, anyone can buy life insurance from anyone,” laments Lyne Duhaime, president of the Canadian Association of Life and Health Insurance Companies (ACCAP). “No one needs a license or registration with the AMF to buy back a policy or advise someone to sell it. “
“The new owner has an interest in the insured dying sooner rather than later. It is the equivalent of speculating on the death of people. Moreover, Quebec is the only province that does not prohibit or regulate this kind of practice, ”she said.
Meanwhile, in the United States …
This market really took off in the United States in the 1980s, during the AIDS epidemic. Americans with HIV were selling their policies to pay for their medical bills and the costs of triple therapy.
Since then, south of our borders, the industry has been regulated. Licenses are required to buy and resell life insurance policies. Today, more than 40 states oversee what is considered the largest secondary life insurance market on the planet. The latter generated nearly 70 billion US dollars between 1998 and 2015, including more than 52 billion after 2005. These estimates exclude transactions that originate from the tertiary market, ie transactions between investors after the initial sale by the insured.
Montreal-based investment fund Alternative Capital Group (ACG) knows the American industry well, and has been doing business there since last year. “This asset class has good potential and has many great qualities that join our primary interest: to design financial products that are of interest to investors who use our services”, says Claude Delage, founder and partner at ACG.
Currently low interest rates make financial instruments like bonds less attractive, he says, noting that other products, like insurance policies, are suddenly more in demand. “There is even an interest that comes from large pension funds for these products,” says Mr. Delage, who also refuses to name them.
Although ACG is present in the United States, the fund has never considered investing in the sector in Quebec. “There’s a very simple concept: if you don’t want problems, don’t be active in states that aren’t regulated. “
This does not prevent Mr. Delage from criticizing insurers who suggest that this market is tantamount to speculating on the death of people. “This is pure intellectual dishonesty. Basically, if I buy a contract [d’assurance] validly produced by an insurer who has an insurance company charter, how is it different from initially establishing a contract for the life of a person? “
Between prohibition and supervision
Maxime Gauthier is Managing Director and Chief Compliance Officer at Mérici Financial Services. The framing would be beneficial for consumers and should be carried out by duly recognized professionals, he said. “A regulated market would certainly have the advantage of protecting clients better than the current situation, by ensuring that their policy is transferred properly and, potentially, at a fairer price for them. “
In addition, he notes that it is not surprising that insurance companies are pushing for a ban. These analyze several factors before granting life insurance, including the rate of default or abandonment of the policy, he explains.
And, in fact, “a significant part of the insurance policies issued do not ultimately result in claims against the insurer, since the clients have abandoned the cover”, he says, stressing that the repurchase of policies has the effect to keep in force contracts that had to be abandoned over the years, according to insurers’ forecasts. “It greatly complicates their work,” he adds.