Efforts to control stranger-originated life insurance are starting to surface in various states as witnessed by a recent draft bill introduced in Ohio and one in progress that could be brought to New York Gov. Eliot Spitzer as early as Dec. 14.
To date, the contentious issue of crafting model regulation has been taken up by the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y.
Industry interviews indicate that New York’s effort picked up steam at a Dec. 5 meeting where the insurance department gathered opinions and recommendations from different industry stakeholders.
Details of the draft have not been released at press time, but sources indicate it includes a 2-year ban on the sale of a life insurance contract as well as a provision that would regulate STOLI sold through the improper use of trusts.
According to industry representatives, the New York draft is based loosely on both the NAIC and NCOIL models, but radically amended. It will not include a definition of STOLI because that can give “operators” a way to circumvent the law, a reason sources say is consistent with regulators not commenting on previous STOLI/IOLI proposals.
Although the introduction of a bill depends on factors such as getting Spitzer’s approval and putting it on the legislative calendar, industry reps say that it could be introduced in early 2008.
In addition, according to interviews, the department wants a privacy provision that would prevent release of the viator’s identity out of concern that “people could be rubbed out.” Big institutional investors had offered to allow such information to be held with a separate third party entity, people who were at the Dec. 5 meeting said. Policy purchasers would have to be registered, sources added.
A bill in the Ohio Assembly, H.B. 404, specifies a 5-year ban if the agreement is entered into prior to the application for or issuance of a policy that is the subject of a viatical settlement contract. There are exceptions for unexpected life events such as death or divorce.
Under provisions in the bill, the viator could enter into a settlement 2 years after the policy’s issuance if the viator uses unencumbered assets, there is full recourse liability, there are no agreements to guarantee to purchase the policy, and neither the insured nor the policy has been evaluated for a settlement.
The provisions track points in the NAIC model.
In both Ohio and New York, the bills contain a provision that would seek to eliminate STOLI through trust arrangements.
The Ohio bill extends the rescission period for a life settlement from the current 15 days under the law to 30 days if a payment has already been made and to 60 days if no payment has been made.