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Life Health > Life Insurance

Ohio Enacts Law To Curb STOLI

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Ohio Gov. Ted Strickland on June 12 signed into law a bill that was written in an effort to root out stranger-originated life insurance.

The new amendments to Ohio insurance law “recognize a shared responsibility of the life settlement industry, life insurance companies and the [insurance] department to protect consumers against STOLI transactions,” says Mary Jo Hudson, director of the Ohio Department of Insurance.

The bill, H.B. 404, officially amends the state Viatical Settlement Act. Under the new law, the department will have more authority over life settlements, and life settlement brokers and providers are required to give insurers more information before engaging in a life settlement.

Life insurers will have to ask specific questions aimed at uncovering STOLI schemes and report suspected schemes to the department.

The Ohio law also limits the ability of consumers who use certain types of premium financing arrangements to sell life insurance policies within 5 years of buying the policies.

A policyholder can sell a life policy during the 5-year restricted period if the policyholder has experienced a life-changing event such as illness, unemployment or the death of an intended beneficiary.

“Gov. Strickland and the Ohio legislature have taken major steps towards deterring STOLI abuses by enacting a strong bill,” says Frank Keating, president of the American Council of Life Insurers, Washington.

Keating singled out the increase in the department’s authority and the 5-year restricted period for praise.

Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., says the version of H.B. 404 signed by Strickland was a “massive improvement” over the original version of the bill that came out of the state House of Representatives, and that LISA is “generally pleased” with the bill becoming law.

While LISA has maintained a strong opposition to the type of 5-year restriction on sales outlined in a model act approved by the National Association of Insurance Commissioners, Kansas City, Mo., Head says the Ohio ban is “significantly different” and involves more of a shared responsibility between the life insurance carrier that issues a policy and the policyholder seeking to sell the policy on the secondary market.

“It shifts the burden of proof” from the policyholder back to the carrier after a 2-year period, and it removes some of the more restrictive language included in the NAIC model, Head says.

In addition, Head says, the bill’s provision requiring carriers to report instances of STOLI is “going to produce interesting results.” Head says he is unaware of any instances in which a carrier has reported STOLI cases involving its own agents.

But the bill may be difficult for the Ohio department to administer, Head says.

Life agents groups are praising the bill.

“STOLI transactions violate the essential social purpose of life insurance, which is protection,” says Jeffrey Taggart, president of the National Association of Insurance and Financial Advisors, Falls Church, Va. “Life insurance was not intended to be used as a vehicle for financial speculation on human life.”

David Stertzer, CEO of the Association for Advanced Life Underwriting, Falls Church, Va., noted that his group was among the first to call for measures to combat STOLI, and that the group testified on behalf of the Ohio bill as it made its way through the state legislature.

The bill “is a great example of how to deal with abuse while protecting legitimate practices,” Stertzer says.


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