Members of the California Senate have voted 35-1 to approve S.B. 1543, a bill that would define “stranger-originated life insurance” and classify the creation of STOLI arrangements as a fraudulent act.
The California Assembly has voted 76-1 to approve the bill.
The American Council of Life Insurers, Washington, and other industry groups, including the National Association of Insurance and Financial Advisors, Falls Church, Va., and the Association for Advanced Life Underwriting, Falls Church, have put out a statement welcoming passage of the bill and calling for Gov. Arnold Schwarzenegger, R, to sign it.
California state Sen. Michael Machado, D-San Joaquin, Calif., based S.B. 1543 on a model developed by the National Conference of Insurance Legislators, Troy, N.Y.
At least 12 other states already have acted against STOLI arrangements, according to ACLI President Frank Keating.
By making S.B. 1543 law, California would “protect its senior citizens from the speculators whose only interest in them is their early death,” Keating says.
In addition to defining the creation of STOLI arrangements as a fraudulent act, S.B. 1543 would permit the California Insurance Department to collect information from life settlement providers that would help it monitor the market, insurance groups say.
“NAIFA’s membership is very pleased with the California anti-STOLI legislation,” says NAIFA President Jeffrey Taggart.
The California anti-STOLI bill can help regulators “prevent stranger-originated life insurance without impairing legitimate uses of life insurance and life settlements,” AALU Chief Executive David Stertzer says.
Brad Wenger, chief executive of the Association of California Life and Health Insurance Companies, Sacramento, Calif., notes that support for action against STOLI arrangements has come from the AARP, Washington, and leaders in the life settlement industry as well as from insurance company executives and producers.
The California Life Settlement Association, Santa Monica, Calif., has opposed S.B. 1543, contending that the language in the bill is too vague and ought to require insurers and producers to inform consumers about the life settlement alternative to surrendering an unwanted policy or letting a policy lapse.
The Life Insurance Settlement Association, Orlando, Fla., has supported the bill.
“It is a well-crafted bill,” says LISA Executive Director Doug Head.
The bill should be a model for STOLI bills in other states, Head says.
CORRECTION: An earlier version of this article gave an incorrect description of the STOLI definition included in S.B. 1543.