Stranger-owned Life Settlement Policies in Hot-Seat
Thursday, July 8th, 2010
Regulators are hot on the trail of insurance agents who dealt in ’stranger-originated’ life insurance policies (known as STOLIs or Life Settlement plans) whereby seniors, often people in their 70’s, were encouraged to take out life insurance policies which were then sold on to investment companies; the investors took over the premiums, and would receive the lump sum paid out on the original policyholders death. Cash-strapped elderly clients were often attracted by the promise of an early payout from the sale of the policies.
Dubious Ethics Not an Issue for Insurance Agents or Investors
Regulators were startled by the huge rise in the number of ’stranger-originated’ policies being sold in this way – between the years of 2004 and 2008 it became a billion-dollar industry. Although the agents often set up the deals at huge financial gain to themselves, it has to be noted that investors were happy to climb on the bandwagon.
Despite only narrowly skirting the “insurable interest law” which prohibits a third party owning an insurance policy when they could have no conceivable interest in the well-being of the person holding it – (far from it in fact), the practice was legal across quite a few states until recently.
A bar graph showing the growth in life settlement policies.
Insurers File Civil Actions against Agents for Life Settlement Policies
Insurance companies claim insurance agents misrepresented their clients’ assets when looking to purchase life insurance policies for them, with many committing acts of outright fraud when filling in the application forms. According to them, in an attempt to secure policies, over eager agents, fueled by greed, inflated the estimated wealth of their clients and fraudulently answered ‘no’ when asked if they had any plans to sell the policies on.
For this reason insurers such as AXA have voided many of these insurance policies, leaving investors with now-worthless investments – unsurprisingly they are also suing the brokers for compensation.
Wealthy Insurance Agent in Trouble for Life Plan Fraud
One insurance agent being pursued in a high profile case, is Steven M Brasner, accused of committing grand theft and fraud when acting as the middleman in securing $78 million worth of insurance policies, netting him over $2 million in commission.
An illustration of the life insurance securitization process, which is complicated and similar to mortgage securitization.
He is charged with lying on his clients’ application forms in order to secure life insurance policies for them. As well as facing state prosecution Mr Brasner is also being pursued through the civil courts by the insurance companies and investors he dealt with. Mr Brasner is believed to have inflated his client’s net worth sometimes by up to six times in order to secure business. Steven Brasner is just one among many agents who are being pursued – there are over 200 civil lawsuits pending, filed by insurers. Judge John Meyer noted that the level of fraud was ‘astounding.’
Mr Brasner has declared himself innocent of all charges. He is quoted as saying that the companies he dealt with such as the investment group G111 Accumulation Trust (part of Deutsche Bank) were culpable and ‘had the expertise’ to ‘conduct due diligence’ prior to buying ownership risks.
More Information
See the New York Times article on Life Settlement Securitization here
photo credit: VoisineN
