Members of the National Conference of Insurance Legislators are still trying to add a definition of “stranger-owned life insurance” to a life settlements model act update.
State lawmakers here for the annual meeting of NCOIL, Troy, N.Y., rejected two STOLI definition motions during a special model act session.
But meeting participants who requested anonymity said NCOIL members are continuing to work on a STOLI definition.
In a STOLI arrangement, an investor with no insurable interest in the life of a consumer helps the consumer get life insurance, to create a policy that can be sold through a life settlement transaction.
Life settlement companies have accepted efforts to fight STOLI by including a life settlements model act provision that would restrict policyholders’ ability to sell their policies for 2 years.
The American Council of Life Insurers, Washington, has been pushing for a 5-year restriction on resales.
The ACLI has tried to help NCOIL by agreeing not to press for a 5-year restriction, but shortening the restriction period would increase the importance of defining STOLI in a way that could help life insurers filter out STOLI arrangements before policies are issued, according to Michael Lovendusky, an ACLI representative.
Today, insurers often have a hard time stopping STOLI transactions, in part because initiators of many of the policies are complying with current state insurable interest laws, according to George Coleman, who was representing Prudential Financial Inc., Newark, N.J.
Some say insurers could use the fraud provisions of the Unfair Trade Practices Act to respond to organizers of STOLI arrangements.
The ACLI believes that relying on the Unfair Trade Practices Act is a poor substitute for establishing a strong STOLI definition, Lovendusky says.
An insurer could act on an Unfair Trade Practices Act fraud complaint only after fraud had occurred, but it could use a strong STOLI definition to keep fraud from happening in the first place, Lovendusky says.
Lawmakers, insurers and life settlement companies are weighing every word of proposed STOLI definition provisions