The National Association of Insurance Commissioners' (NAIC) Life Insurance and Annuities Committee at its fall meeting formed a new working group to evaluate next steps on a model bulletin designed to help regulators deal with the practice of stranger-originated annuity transactions (STOA). The action follows a public hearing held by the NAIC in May to begin to gather information on what the organization describes as a relatively new phenomenon, identified in similar fashion to stranger-originated life insurance transactions, or STOLI.

The working group is seeking industry input in the model bulletin's language in the hopes of producing a complete action document,

New Jersey Banking and Insurance Commissioner Tom Considine and Iowa Deputy Commissioner Jim Mumford, who agreed to lead the working group effort during a public hearing at the NAIC's meeting, will assess industry comments and recommend changes to a proposed bulletin, according to an A.M. Best report.

STOA transactions take place between agents and/or investors and an individual who is offered a fee for the use of his or her identity as the “measuring life” on an investment-related annuity. This individual is typically a stranger to the agent or investor, and often in ill health and not expected to survive the first year of the policy. Often, notes the report, agents/investors find individuals meeting the criteria via newspaper advertisements or even by soliciting residents in nursing homes or hospice care.

The agent/investor completes the annuity transaction, including specific conditions such as a guaranteed minimum death benefit. To avoid being caught, the agent/investor often ensures that the dollar amount of the annuity will fall below particular underwriting guidelines. Further, the agent names a trust or organization as beneficiary in order to hide the true identity of those who would benefit from the claimant’s death.

The NAIC bulletin urges insurers to conduct due diligence with detection methods, specific questions to identify fraud and other steps.

A handful of insurance and investment organizations commented on the proposed bulletin, mostly offering technical amendments, notes the A.M. Best report, which added that insurers expressed strong interest in curbing what they see as a small, but emerging form of fraud.

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