Insurance Industry Groups United in STOLI Stand |
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Written by U.S. Insurance News
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Monday, 04 December 2006 |
Five insurance industry groups – companies, agents, and brokers are calling for changes to state regulation to protect the life insurance from transactions known as stranger-originated life insurance (STOLI).
Five insurance industry groups – companies, agents, and brokers are calling for changes to state regulation to protect the life insurance from transactions known as stranger-originated life insurance (STOLI).
The American Council of Life Insurers (ACLI), the Association for Advanced Life Underwriting (AALU), the National Association of Insurance and Financial Advisors (NAIFA), and the National Association of Independent Life Brokerage Agencies (NAILBA) have all come together to halt these speculative uses of life insurance.
In STOLI arrangements, life insurance coverage is initiated for older people by third parties of no relation. These persons will fund the premium payments for investment purposes. STOLI schemes can involve policy transfers upon the expiration of a policy's two-year incontestability period or they can be arrangements for policy death benefit payments to go directly to investors.
"STOLI arrangements are contrived transactions, where policies are obtained that circumvent the intent of state insurable interest laws," said ACLI President and CEO Frank Keating. "STOLI is in direct opposition to the true intent of life insurance. It does nothing to protect an individual's family and estate in the case of a death. It is not being used as part of an employer's long-term planning to cover key employees, or provide benefits to workers."
The insurance industry has focused on the issue with the National Association of Insurance Commissioners (NAIC). Industry regulators are looking at amendments to the NAIC Viatical Settlement Model Law, which may close the loopholes that permit STOLI transactions. The model was adopted in 1993 by the NAIC to regulate the sale of life insurance policies from terminally ill individuals to unrelated third parties. The model now covers other life settlements in addition to life insurance policies. Recently, shrewd investors and hedge funds found loopholes allowing the STOLI transactions.
"Our position on STOLI is strong, clear and firm -- we are seeking actions by the states to prohibit STOLI and simultaneously protect life insurance taken out to benefit individuals, families, and businesses, and employees, as well as legitimate life settlements," said AALU President Dermot Healey. "Life insurance should not be taken out for the benefit of stranger investors who do not and should not have an insurable interest under the laws of the states."
"The industry applauds Commissioner Poolman for his efforts to address STOLI transactions," said NAIFA President John Davidson. "At the same time we are working with regulators to ensure that any amendments to the model law do not halt legitimate insurance financing or legitimate life or viatical settlements in which policyholders who have properly obtained coverage to protect their families or businesses no longer need it and sell their policies."
Many states have begun their efforts to prohibit STOLI arrangements. North Dakota Insurance Commissioner Jim Poolman is currently working on amending the viatical model. Individual state insurance departments are addressing STOLI reforms. The Utah insurance department recently issued a bulletin that examines the state's insurable interest laws. The New York Insurance Department also issued a similar bulletin. And last year, both the NAIC and the National Conference of Insurance Legislators embraced resolutions reproving another form of STOLI where investors purchase insurance through charities, for their own private investment purposes.
"Clearly there is a consensus building among state regulators and legislators that STOLI transactions do harm to the letter and spirit of state insurable interest laws," said NAILBA Chairman John Felton. "These laws exist for an extremely valid and a longstanding purpose: to prevent people from wagering on the death of strangers. We hope that other states will soon follow." |
