Members of the California Senate 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 had already voted 76-1 to approve the bill.
The American Council of Life Insurers, the National Association of Insurance and Financial Advisors, and the Association for Advanced Life Underwriting, put out a statement welcoming the bill’s passage and calling for Gov. Arnold Schwarzenegger to sign it.
California state Sen. Michael Machado, D-San Joaquin, Calif., based S.B. 1543 on a model created 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 fraudulent, 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 insurance company executives and producers.
The California Life Settlement Association, Santa Monica, Calif., 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., supported the bill. “It is a well-crafted bill,” says LISA Executive Director Doug Head, who adds it should be a model for STOLI bills in other states.