Insurance regulators to examine controversial death benefit scheme

The National Association of Insurance Commissioners will hold a May 20 hearing in Washington to address stranger-originated-annuity transactions. In such transactions, investors pay seniors or the sickly a lump sum in exchange for the death benefits tied to annuities.
The hearing will concentrate on the practice of baiting seniors and terminally ill people to act as insured lives on an annuity purchase, with the death benefit going toward a third-party investor or an intermediary.
Regulators have zeroed in on the issue after The Wall Street Journal reported on a Rhode Island attorney who played matchmaker to elderly or sickly annuitants and wealthy investors. The investors paid the elderly and sick a $2,000 fee to use their names on the annuity. Once an annuitant passed away, investors reaped a windfall in the form of an enhanced death benefit.
Insurers, including Transamerica Life Insurance Co. and Western Reserve Life Assurance Company of Ohio, have been fighting back against such practices, asserting in federal court that state insurable-interest laws apply to annuity death benefits. The insurers have sued the attorney in the Journal story, as well as the broker-dealers and registered representatives who processed the annuities.
Insurable interest in a stranger-originated-annuity transaction is precisely what the Life Insurance and Annuities Committee would like to cover in its May hearing.
The group also hopes to weigh in on whether the transactions are lawful and whether the models and regulations should be tweaked for consumer protection.