On June 11, 2008, Governor Strickland signed HB 404,which protects Ohio seniors by limiting Stranger-Originated Life Insurance (STOLI) transactions in the Ohio life insurance market. The new law takes effect on September 11, 2008.
WHAT IS STOLI?
"STOLI involves investment firms inducing certain wealthy
seniors to obtain life insurance. These come-ons often include
promises of “free life insurance” and other incentives—
sometimes including payments in the six figures. The
investment firms fully finance the transaction and continue
paying premiums throughout the life of the contract. Two
years into the contract, the investment firms—speculators—
purchase the policy and stand to profit from the death
benefits from policies on lives of strangers."
Stoli Alert, March 2007.
The important implications of this new law are summarized as follows:
ACT SUMMARY
· Requires viatical settlement providers, as a condition of licensure, to provide information concerning their use of life expectancy information and to meet financial responsibility requirements for licensure.
· Requires a business that is licensed as a viatical settlement broker to maintain at least one individual who individually is licensed as a viatical settlement broker.
· Requires individuals who are licensed as viatical settlement brokers to complete continuing education requirements.
· Exempts certain attorneys, certified public accountants, financial planners, and insurance agents from viatical settlement provider or broker licensure requirements.
· Allows a viatical settlement provider or viatical settlement broker to assign, transfer, or pledge a viaticated policy to a viatical settlement purchaser or a qualified institutional buyer.
· Allows the Superintendent of Insurance to refuse to issue, suspend, revoke, or refuse to renew a license because the licensee was the subject of administrative action by the Department of Commerce, Division of Securities.
· Revises the definition of "viatical settlement contract" and identifies ten specific situations or arrangements that are not viatical settlement contracts.
· Requires viatical settlement providers or viatical settlement brokers to disclose additional information to a viator.
· Requires the Superintendent to disapprove a contract or disclosure form if it does not meet the specified requirements for disclosures.
· Requires all premium finance companies to disclose premium finance agreements relating to life insurance policies to the insurer.
· Under specified situations, prohibits a viator from entering into a viatical settlement contract within five years, rather than two years, of the date of issuance of the insurance policy.
· Specifies that a viator is prohibited from entering into a viatical settlement contract prior to the application for or issuance of the policy and from promoting a policy for the purpose of selling the policy.
· Redefines the possible situations (exceptions) under which a viator could enter into a viatical settlement contract within the required waiting period after the issuance of the insurance policy.
· Allows the Superintendent to develop or approve a form requesting verification of coverage of a viator by an insurer and requires insurers to accept an original or facsimile or electronic copy of that form.
· Allows a viatical settlement broker, in addition to a viatical settlement provider, to request verification of coverage from an insurer and allows an insurer to indicate in its response to such a request that it intends to investigate possible fraud.
· Redefines the escrow agent's role in the process of viaticating a policy.
· Prohibits, in advertisements, the use of certain words indicating that a life insurance policy is "free" unless true.
· Adds additional fraudulent viatical settlement acts including actions regarding stranger-originated life insurance (STOLI) and defines STOLI.
· Requires life insurance companies to adopt procedures to detect and prevent stranger-originated life insurance.
· Specifies that a prevailing party in a civil action is not entitled to attorney's fees if the prevailing party provided information of the party's own fraudulent viatical settlement acts.
· Requires antifraud initiatives to include a description of the procedures used to review the accuracy of life expectancies.
· Relieves an insurer that issued a policy being viaticated from liability for any act or omission of a viatical settlement broker or viatical settlement provider unless the insurer receives compensation for the placement of a viatical settlement contract.
· Requires the Superintendent to consider certain factors in determining the nature, scope, and frequency of examinations of licensees.
· Removes the authority of the Superintendent to conduct a market examination of an insurer.
· Requires the Superintendent to cooperate with an official from another state for the examination of a foreign or alien licensee as far as is practical.
· Revises the requirements for annual reports by viatical settlement providers.
· Requires the Superintendent to keep confidential and not a matter of public record all individual transaction data regarding the business of viatical settlements and data that could compromise the privacy of personal, financial, and health information of the viator or insured.
· Allows persons with knowledge of an insured's identity to disclose that identity if the disclosure is required to purchase financial guarantee insurance.
· Makes certain other conforming changes.
READ THE ACT: HB 404
READ THE OHIO DEPARTMENT OF INSURANCE PRESS RELEASE: Law Amendments Contain Strong Consumer Protection Elements
REVIEW STOLI LEGISLATION AND NEWS THROUGHOUT THE COUNTRY: National Association of Insurance and Financial Advisors - Stoli Alert
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