01 march 2011 1 globalsource llc stranger originated life insurance: the view from the street...

01 March 2011 www.globalsourcellc.com

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GlobalSource LLC

Stranger Originated Life Insurance:

The View from the Street

Washington • Cyprus • Dubai

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.comWashington • Cyprus • Dubai

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“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)


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“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.”


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“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)


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Issue: FraudInvestor 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 issue01 March 2011 www.globalsourcellc.co

mWashington • Cyprus • Dubai

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Today’s Perspective: The Investigators

• Not an expert

• Not legal

• Not the insurance company’s

• Investigative; Claims Professional Perspective

Feel free to comment


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Case Example No. 1

Winter Day in Chicago(“The classic STOLI case”)

• (In Retrospect a classic case; didn’t know at time)

• Insured on paper: High net worth; $10.0 mil. policy; deceased at age of approx. 80.

• 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. store01 March 2011 www.globalsourcellc.co


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Case Example No. 1 (continued)

Winter Day in Chicago(Claim falls apart)

• Interview with lawyer in Chicago

• Low expectations going in

• 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 history01 March 2011 www.globalsourcellc.co


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Classic Case Misrepresentation of financials

Unclear if insured even knew about the policy

“Dirty” players involved in putting it together

“Known” players involved


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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


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Case Example No. 2

Florida Nexus• Several Florida cases – full time/part time residents; property; producer/agent there; etc.

• Reasons for Florida Nexus?

• Elderly population

• In wealthier neighborhoods

• Sophisticated and slick business (contrast to Chicago example from earlier)


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Case Example No. 2: Florida

“The STOLI BUSINESS”• Targeting people that do have substantial net worth

• 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.”


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STOLI Marketing (P. 2)


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• More “sophisticated” marketing

• Sales being initiated

• Club

• Golf Course

• Potential customers identified by network of “agents”

• Make introductions

• Get percentage when successful

STOLI is a Big Business


Impact on Investigation

www.globalsourcellc.com

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Adds a twist to the investigation:

• Look at insured

• Look at the beneficiary

• Also look at the producer/agent

• Trustees

• More sophisticated financial analysis

01 March 2011

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 investigate01 March 2011 www.globalsourcellc.co


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• 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 policy01 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).


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• 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).


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These cases are legal in nature and should be handled by an experienced claims examiner

with proper legal counsel.


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Claims/Investigators’ Tools (1)

Analysis of documents

Producers

Agents

Insured

Web research

Database

Public records


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Claims/Investigators’ Tools (2)

• Interviews

• Overall:

• Look at “bigger picture”

• Patterns and trends

• Prepare from start for litigation


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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”


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GlobalSource LLC

Thank You

Bill HutmanManaging Director, GlobalSource LLC

[email protected]

“Stranger Originated Life Insurance: View from the Street”


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01 march 2011 1 globalsource llc stranger originated life insurance: the view from the street...

Documents

life insurance policies

life policies

human life

stoli transactions

stoli schemes

typical life settlement

idaho department of

behalf of senior citizens