An arm of the National Association of Insurance Commissioners has drafted a model bulletin that would encourage insurers to guard against participating in stranger-originated annuity transactions.

The Life Insurance and Annuities Committee at the NAIC, Kansas City, Mo., has posted a STOA model exposure draft on its section of the NAIC website.

The committee is asking members of the public to submit comments on the draft by Oct. 8.

A STOA is a transaction initiated by an agent, investors or others who pay a fee for the right to use an individual’s identity to buy an annuity offering high returns. The originators of the transactions prefer to use ailing individuals with short life expectancies as the annuitants, the NAIC says.

A STOA originator often will try to increase annuity returns by adding a bonus rider or guaranteed minimum death benefit option to the base contract, and agents may buy a number of annuities with the same annuitant, according to the NAIC.

The model bulletin would urge carriers to review chargeback policies, to ensure that agent commissions are adjusted if a policy is annuitized within the first year; create procedures to identify agents who may be involved in STOAs; and ensure that agents ask annuitants for information about their health and how the annuitants will be paying for the annuities they hope to buy. Carriers also should establish methods for reviewing questionable applications and reporting potential STOA contracts to the appropriate state regulators, according to the model draft.