The Florida insurance department is considering introducing legislation during the 2009 legislative session that would curtail stranger-originated life insurance.
The state’s legislative session runs from March through May.
Toward that end, an informational hearing was held on Aug. 25 so the department can study the issue, says Mary Beth Senkiewicz, deputy commissioner-life and health with the department. Comment will be received through Sept. 28.
There was a lot of discussion about what STOLI means, says Senkiewicz. In general, it was agreed that it was an illegal attempt to evade an insurable interest law. There also seemed to be agreement, she adds, that legitimate contracts are assets and owners can sell their policies to someone else.
The distinction between stranger-owned and stranger-originated contracts was made, Senkiewicz adds. There is concern about the “manufacturing” of a policy solely for the purpose of a sale to an investor and the use of premium financing as part of that transaction, she says.
Senkiewicz adds that Florida Insurance Commissioner Kevin McCarty 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.
Senkiewicz notes other points that came up during testimony such as 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.
“The manufacture of life policies for the benefit of investors is a real threat to our franchise,” says Curt Leonard, regional vice president-state relations with the American Council of Life Insurers, Washington.
During the Florida hearing, the different acronyms and what they actually mean were discussed, he says. Insurers do not have a problem with stranger-owned life insurance that is part of the traditional settlement business, he says. But, Leonard continues, insurers do have concern with stranger-originated life insurance where “investors are looking for elderly bodies to recruit.”
Two representatives for the Association for Advanced Life Underwriting, Falls Church, Va., testified about what they are seeing in the field.
STOLI is showing up in mutated and hybrid variations, according to Bob Rubin, an AALU representative who is a producer with Wachovia Insurance Services, Boca Raton, Fla. These hybrid STOLI transactions often require a personal guarantee of 25% of the cost of the contract to be put up, Rubin says.
But Marshall Jones, president of RMJ, Inc., West Palm Beach, Fla., says the understanding is that the life insurance purchaser will never have to make good on that guarantee.