GlobalSource LLC
Stranger Originated Life
Insurance:
The View from the Street
Washington • Cyprus • Dubai
01 March 2011
www.globalsourcellc.com
1
Hot (controversial) Topic
•
Litigation nationwide addressing
•
Insurance companies nationwide concerned
•
•
Insured – particularly elderly – concerned
and puzzled
Lots of money involved
“Names and Place Changed to Protect ….”
01 March 2011
www.globalsourcellc.co
m
2
“Definition – Against”(1)


“STOLI stands for ‘Stranger Originated Life
Insurance.’ In STOLI schemes, investors entice
seniors to take out policies on their lives and then
profit when they die. The sooner they die, the
greater
the profit. In effect, STOLI promotes
wagering on human life.
Also, STOLI threatens to expose consumers to
unexpected taxes, loss of privacy, and inability to
obtain life insurance in the future.”
(Idaho Department of Insurance)
01 March 2011
www.globalsourcellc.co
m
3
“Definition – For” (2)
“STOLI is the prevailing practice of investors
buying life insurance policies on behalf of senior
citizens, with the investors as the beneficiaries.
The investors are usually not a direct relative of
the senior citizens to whom the policy is named. In
exchange, the senior citizen will get some money
to serve as payment. The investors usually allow
the life policies to mature and then sell them for
profit. Either that or get the benefits when the
elderly person dies.”
01 March 2011
www.globalsourcellc.co
m
4
“Definition - Balanced”(3)
“In a typical life settlement, a policy purchased in
good faith but no longer wanted or needed is sold to
a third party. But in STOLI transactions, financial
speculators or their representatives induce senior
citizens to purchase life insurance, policies the
seniors otherwise would not obtain, with the intent of
transferring the death benefits to the speculators at a
later date. Senior citizens are often targeted for such
transactions through fraud, and can be left
vulnerable to unexpected taxes and fees.”
(By Fran Matso Lysiak)
01 March 2011
www.globalsourcellc.co
m
5
Issue: Fraud
Investor not the problem
Use of trusts and other financial/legal instruments
not the problem
Issue: Misrepresentations
To insurance company
To insured
To public
Illegal or Not – Public policy issue
01 March 2011
www.globalsourcellc.co
m
6
Today’s Perspective:
The Investigators
•
Not an expert
•
Not legal
•
Not the insurance company’s
•
Investigative; Claims Professional Perspective
Feel free to comment
01 March 2011
www.globalsourcellc.co
m
7
•
•
•
Case Example No. 1
(In Retrospect a classic case; didn’t know at time)
Winter
Day
in
Chicago
Insured on paper: High net worth; $10.0 mil. policy;
deceased (“The
at age of classic
approx. 80. STOLI case”)
Database and public records: Major red flags

Couldn’t find the assets

Lived in Arizona in mobile park

Records of her stating she had little money

Job: cosmetics sales at dept. store
01 March 2011
www.globalsourcellc.co
m
8
•
Case Example No. 1 (continued)
Interview with lawyer in Chicago
•
Winter
Day
in
Chicago
Low expectations going in
(Claim falls apart)
•
Son shows up
•
Producer rep shows up
Pieces come together (fall apart):
•
•
Son hairdresser
•
Customer approached him with “great opp.”
•
Customer was disbarred lawyer; STOLI history
01 March 2011
www.globalsourcellc.co
m
9
Case Example No. 1 (continued)

Classic
Case
Misrepresentation of financials

Unclear if insured even knew about the policy

“Dirty” players involved in putting it together

“Known” players involved
01 March 2011
www.globalsourcellc.co
m
10
Case Example No. 1 (continued)
•
•
Classic Case
Investors decided to fight it – (despite being “outed”;
an important lesson)
Conclusion: Insurance company’s refusal to pay
stood; also got to keep premiums to cover legal and
investigative expenses
If only all STOLI cases were this easy
01 March 2011
www.globalsourcellc.co

m
11
Case Example No. 2
•
•
•
Several Florida cases – full time/part time
residents; property; producer/agent there; etc.
Florida Nexus
Reasons for Florida Nexus?
•
Elderly population
•
In wealthier neighborhoods
Sophisticated and slick business (contrast to
Chicago example from earlier)
01 March 2011
www.globalsourcellc.co
m
12
Case Example No. 2: Florida
•
•
•
Targeting people that do have substantial net
worth
“The STOLI BUSINESS”
Excellent report by the Florida Office of Insurance
Regulation (FLOIR):
“Seniors are ‘wined and dined’; promised ‘free
insurance’; told that they are in the situation of
‘heads, I win or tails, I can’t lose’; and promised
cash or a profit for their participation in these
schemes.”
01 March 2011
www.globalsourcellc.co
m
13
Case Example No. 2: Florida
STOLI Marketing (P. 2)
01 March 2011
www.globalsourcellc.co
m
14
Case Example No. 2: Florida
STOLI Marketing (P. 2)
01 March 2011
www.globalsourcellc.co
m
15
•
Case Example No. 2: Florida
More “sophisticated” marketing
•
Sales being initiated
•
STOLI Marketing (P. 2)
•
Club
•
Golf Course
Potential customers identified by network of “agents”
•
Make introductions
•
Get percentage when successful
STOLI is a Big Business
01 March 2011
www.globalsourcellc.co
m
16
Case Example No. 2: Florida
Adds a twist
to the on
investigation:
Impact
Investigation
•
Look at insured
•
Look at the beneficiary
•
Also look at the producer/agent
•
Trustees
•
More sophisticated financial analysis
01 March 2011
www.globalsourcellc.co
m
17
How to Handle STOLI
Claims (1)
Need to Identify
•
Not easy
•
Experience does help –
•
•
Size of policy
•
Structure
•
Communities
•
Agents; Producers; Trustees
“Chicken or the Egg” – Need to investigate
01 March 2011
www.globalsourcellc.co
m
18
How to Handle STOLI
Claims (2)
•
Need to Identify All Involved Parties
•
Trustee
•
Attorneys
•
Family members
•
Executor (not always the trustee)
•
Investors
•
Accountant
•
Agent – and anyone else involved in securing and/or
transferring the policy
01 March 2011
www.globalsourcellc.co
m
19
How to Handle STOLI
Claims (3)
Challenges:
Examiners will tell you that one of the biggest
pitfalls when reviewing and investigating STOLI
cases is gathering information from so many
people.
Even more difficult is getting the information
from people with vested interest, who may
refuse to speak and/or fully cooperate with
insurer of their representative (investigator).
01 March 2011
www.globalsourcellc.co
m
20
How to Handle STOLI
Claims (4)
•
•
Keep a checklist of what you need and from
whom, who has been interviewed and who you
still need to speak to (i.e. authorization/release
forms from next-of-kin or Executor, proof of financial
status from Trustee or Executer).
Don't rely on the Executor, Trustee of family
member(s) to provide Public records (Have your
investigator collect them or request them yourself).
01 March 2011
www.globalsourcellc.co
m
21
How to Handle STOLI
Claims (5)
These cases are legal in nature and should be
handled by an experienced claims examiner
with proper legal counsel.
01 March 2011
www.globalsourcellc.co
m
22
Claims/Investigators’ Tools
(1)
Analysis of documents
Producers
Agents
Insured
Web research
Database
Public records
01 March 2011
www.globalsourcellc.co
m
23
Claims/Investigators’ Tools
(2)
•
Interviews
•
Overall:
•
•
Look at “bigger picture”
•
Patterns and trends
Prepare from start for litigation
01 March 2011
www.globalsourcellc.co
m
24
Looking Forward
•
Still not out of the woods
•
Experience makes it a little easier to handle now
•
But conditions changing (regulatory; investment;
legal)
•
Possible Example: “Foreign STOLI”
•
Example: Three recently in ME and Asia
Need to be prepared for next “twist”
01 March 2011
www.globalsourcellc.co
m
25
GlobalSource LLC
Thank You
Bill Hutman
Managing Director, GlobalSource LLC
[email protected]
“Stranger Originated Life Insurance:
View from the Street”
01 March 2011
www.globalsourcellc.co
m
26