New York Life Settlement and STOLI Legislation
It appears New York will actually pass and enact laws during the next legislative session to regulate the life settlement industry and put an end to premium financing arrangements in New York. Senate Bill Number S66009, available here, “would provide a new comprehensive statutory framework to regulate the life settlement business, including enhanced consumer protections.” This last part refers to ending Stranger Owned Life Insurance Contracts (STOLI) arrangements business in New York.
Among other things, life settlement brokers would now need to be licensed and supervised by the Superintendent of Insurance, and meet continuing education standards. Disclosure rules are put into effect, and the ‘unfair competition’ rules which apply to insurance sales in New York are extended to the life settlement business.
Like most “consumer protection” legislation, it’s unclear whether several of the exemptions and exceptions in the proposed legislation where inserted after lobbying by the life settlement industry, and therefore whether the Life Insurance Settlement Association (LISA) and/or those advocating the benefits of STOLI were actually able to save the majority of their business model. I hope so. For what it’s worth, the rise of life settlements and premium financing has benefited consumers, not harmed them. The insurers are the ones who have been screaming like mad (more or less) to have life settlements and premium financing regulated and banned. It’s not all together clear how mom and pop consumers were being harmed in any of these transactions. For 100+ years, for example, the insurance company issuing the policy was the only company with whom the contract owner could surrender their policy and obtain hard cash. The life settlement industry provided an alternative, and policy owners suddenly were being paid significantly more for their contracts than the cash surrender value offered by the original insurer. In fact, many insurance companies have setup their own life settlement subsidiaries to get in on the action themselves.
In addition, the insurers were the ones who developed and put premium financing into general use in the 1970’s as a way to sell more life insurance. For thirty-plus years premium financing was a perfectly legitimate and astute way to use and pay for life insurance in the business context. Unfortunately, like Doctor Frankenstein’s monster, it got out of control and the actuaries did not plan for their invention to become a financial derivative commodity. So the insurance industry has been putting on the full court press for the past five years to stamp out STOLI in the states, and for the most part the most egregious abuses are being controlled by the insurers themselves through internal policies and procedures. Many insurers as well continue to play both sides of the hand though: lobbying against STOLI in the state capitals, while simultaneously issuing the big premium contracts which they know full well (and often market themselves) are intended to be packaged and resold.
And on and on it goes.
Long Term Care Disclosure Bill Introduced
New York State Assemblywoman Ann Margaret Carozza, from Bayside, Queens, is a trusts and estate attorney and an active member of the local bar associations. Assemblywoman Carozza introduced recently bill number A6423B, titled “An act to amend the insurance law, in relation to disclosure of coverage in a long term care insurance contract.”
NYS Assemblywoman Ann Margaret Carozza
The purpose of the legislation is to make it more likely that purchasers of LTC contracts are made aware that the daily benefit provided by the LTC policy is probably only one-half of what will actually be needed for care in a New York City (and surrounding) facility. The bill would amend Section 1117(b) of the insurance law to require disclosure to the client regarding:
Read more