The Commissioner's Column: DISB’s Legislative Priorities for 2007

By Thomas E. Hampton, Commissioner

The District of Columbia Department of Insurance, Securities and Banking (DISB) has sustained interest in reviewing the District’s insurance, securities, and banking laws. The agency persists in its mission of ensuring that it protects District residents, encourages insurers to offer innovative products to District consumers, and keeps up to date with new financial products and issues.

Since revisions to our laws often make significant impact on District residents and financial-service companies, I wanted to discuss a few legislative areas I hope to address in the near future.

Title Insurance
Title insurance protects against defects in the legal title to real estate, such as misrecorded deeds, invalid wills and forged signatures. Lenders usually require title insurance whenever a person purchases real property with a mortgage. Over the past few months, we have seen an increase in the number of title insurance complaints throughout the country. One recurring concern is that the title insurance policy required by lenders only protects the lender. Many buyers are not aware of this, nor are they aware that they can purchase a separate policy to protect their own interests. Moreover, we have seen a rising number of complaints of fraud, kickbacks and misappropriation of funds.

Unfortunately, the District’s law regarding title insurance is decades old and does not address these growing issues. Therefore, I have asked our agency staff to redraft our current law to bring it up to date. Although the final draft is not complete, the legislation will protect District residents in a number of ways, for instance, by ensuring that insurers have sufficient funds on hand to pay claims; mandating that buyers are aware that title insurance is available to protect their interests and requiring the licensing and continuing education of title insurance agents.

The Interstate Compact Act of 2006
The Interstate Insurance Product Regulation Compact Act of 2006, also known as the Interstate Compact Act of 2006, authorizes DISB to enter into a multistate agreement that allows the compacting states to jointly review and regulate certain insurance products. Joint review will allow insurers to market new insurance products to consumers more quickly and reduce the number of product variations that a company must create to meet state specific standards. That should mean more insurance opportunities for District residents and ultimately lower insurance costs. The interstate compact grew out of the insistence by the U.S. Congress for states to streamline, simplify and modernize state insurance regulation. DISB believes that responding to this request is important to ensure that the core of insurance regulation remains at the state level, so that the District government can better protect its residents and remain responsive to their individual needs and interests.

Modernizing Law on Securities
The need to modernize the securities law resulted from a combination of new federal preemptive legislation, recent significant changes in the technology of securities trading and regulation, and the increasingly interstate and international aspects of securities transactions. The revised law, which has been transmitted to the Council of the District of Columbia for its review, is based on a uniform law approved by the National Conference of Commissioners on Uniform State Laws.

The legislation is based on three basic goals:

to establish uniformity and coordination in state and local securities law
to achieve legal consistency with the federal government’s National Securities Markets Improvement Act (NSMIA). To do that, new definitions have been included in the legislation, and provisions were drafted to accommodate several NSMIA-related securities registration exemptions
to recognize the significant technological advances that have occurred over the past decades by facilitating electronic record keeping, electronic signatures and electronic filings.

Viatical Settlements
DISB is also working on legislation to regulate a financial product that has both insurance and securities aspects: viatical settlements. A viatical settlement involves the sale of a life insurance policy, where the rights to the proceeds of the policy are sold by the policyholder to a third party. A viatical settlement allows the person selling the policy to obtain access to cash (an amount less than the death benefit of the policy), while offering the buyer an investment opportunity. Since life insurance policies are generally sold by potentially vulnerable populations—seniors and persons with life-threatening illnesses—and because viatical settlements are a relatively new product, DISB felt it was important to draft legislation to protect consumers and define the market. The legislation that DISB is drafting would require that viatical settlement brokers and many companies that purchase viatical settlements obtain a license before operating in the District. The legislation would also establish certain actions that must be taken when parties enter into a viatical settlement contract. In addition, the legislation would require that specific disclosures be made to sellers and that sellers be given an opportunity to rescind the viatical settlement contract within a certain period of time.

The bills above are complex and have many provisions other than those I have described. In addition, DISB has even more legislation in the pipeline, but unfortunately, I do not have enough room to describe them all in this column. If you would like more information on a specific piece of legislation, please contact DISB’s Office of Legal Affairs at (202) 442-7756.

Commissioner Thomas E. Hampton is the head of the District of Columbia Department of Insurance, Securities and Banking.