Florida insurance regulators may act against stranger-originated life insurance during their state’s 2009 legislative session.
Florida’s legislative session runs from March through May.
The Florida Office of Insurance Regulation held an informational hearing on STOLI Aug. 25 to learn more about the issue, according to Mary Beth Senkiewicz, a deputy commissioner with the Florida office.
The Florida office will be accepting written comments about the topic through Sept. 28.
Most participants in the Aug. 25 meeting seemed to agree that STOLI is an illegal attempt to evade an insurable interest law, Senkiewicz says.
Participants also seemed to agree that legitimate contracts are assets and that an owner can turn around and sell a contract, she says.
Participants distinguished “stranger-owned” from “stranger-originated” contracts, emphasizing concerns about the use of premium financing to manufacture a policy solely so that the policy can be sold to investors, Senkiewicz adds.
Other points that came up during the hearing included the potential impact of STOLI on the price and availability of insurance and the waivers of liability that seniors are often expected to sign that could make them liable for losses incurred by investors.
Senkiewicz says Florida Insurance Commissioner Kevin McCarty also wants to examine how trusts are used in STOLI transactions and how models developed by the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y., could be used in the development of any legislation.
Industry group representatives have expressed varied reactions to the hearing:
- Curt Leonard, a regional vice president at the American Council of Life Insurers, Washington — “The manufacture of life policies for the benefit of investors is a real threat to our franchise,” Leonard says.
During the Florida STOLI hearing, there was a discussion about the meaning of a variety of acronyms, he says.
Insurers do not have a problem with stranger-owned life insurance, but they do have concerns about stranger-originated life insurance, where “investors are looking for elderly bodies to recruit,” Leonard says.
- Bob Rubin of the Association for Advanced Life Underwriting, Falls Church, Va. — Rubin, who is a producer in Boca Raton, Fla., says STOLI is showing up in mutated and hybrid variations.
One effect of STOLI is that it now can take 3 or 4 weeks to get the illustrations needed to service an in-force contract, Rubin says.
- Marshall Jones of the AALU — “Any type of premium financing can be made to look like traditional insurance planning,” according to Jones, the president of a West Palm Beach, Fla., firm.
Some insurers approve a transaction and learn only later that the policy is part of a STOLI arrangement, Jones says.
Seminars and luncheon meetings are continuing to encourage seniors to take advantage of their “unused insurance capacity,” Jones reports.
Since 2003, the cost of the universal life insurance with secondary guarantees that is often used in STOLI transactions has risen 5% to 7%, and the product is also less available, Jones says.
- Scott Cipinko, executive director of the Life Insurance Finance Association, Marietta, Ga. — Cipinko says life insurance premium finance has been in use for decades and predates the life settlement market.
“Premium financing should be available,” Cipinko says. “It is a good product, a worthwhile product.”
- Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla. — If STOLI legislation is pursued, care needs to be taken to ensure “you are accomplishing what you want to accomplish,” Head says.
Care also needs to be taken to ensure that “efforts to go after STOLI are not really efforts to go after the settlement business,” Head says.
Companies are doing a good job of identifying STOLI transactions, and, if a producer knows of questionable transactions, that producer should report it, Head says.
There is an “ample body of law to go after perpetrators of STOLI,” Head says.
Head says states should use the STOLI bill recently passed by California lawmakers, S.B. 1543, as a model.