The National Association of Insurance Commissioners intends to hold a hearing to explore the sale of annuities in the secondary insurance market.

Thomas R. Sullivan

The association, representing state insurance commissioners, has not set a date or location for the meeting, but the chair of the NAIC’s Life Insurance and Annuities Committee said he hopes to hear from people who have been the target of alleged inappropriate sales to seniors and terminally ill patients, who are induced to purchase an annuity largely to benefit investors or intermediaries.

“I envision hearing from the victims, the consumers who may have been duped, quite frankly,” Thomas Sullivan, who chairs the committee and serves as Connecticut’s insurance commissioner, told IFAwebnews.com.

As a precursor to possible action to regulate the practice, Sullivan said, the hearing also should include testimony from insurance companies, intermediaries, trade groups and others involved in the practice, commonly known as stranger-originated or stranger-owned annuities.

“We need to broaden our understanding of these products,” Sullivan said. “For any [insurance] product that could be resold, we need to make sure we are protecting the consumers’ insurable interests.”

Sullivan said “other regulators put it on my radar,” but declined to say who or how many commissioners had contacted him about the sales. He said those comments came to him “recently.”

Sullivan said his investigation and any action by the NAIC on stranger-owned annuities would be limited to those involving insurance. Any stranger-owned annuity purchases involving variable annuities are outside the state insurance commissioners’ regulatory authority. Variable annuities are deemed securities, regulated by the U.S. Securities and Exchange Commission and Financial Industry Regulatory Authority, or FINRA.

“State regulators need to closely examine the conditions of this evolving marketplace,” Sullivan said. “We are determined to address how individuals are being affected by these new transactions and whether new or modified current laws or regulations are necessary to protect consumers. We have an intense curiosity for which we intend to examine the existence and extent of these practices.”

Last month, a federal investigation into a Rhode Island lawyer who was placing advertisements in a Catholic diocese newspaper offering $2,000 to the terminally ill to buy annuities was reported on by the Wall Street Journal. In return for obtaining the annuities, the buyers were allegedly paid a small amount, while the proceeds would go to the investors, according to the report, which said the lawyer offered “cash immediately available.”

Over the last few years, the NAIC has addressed stranger-owned or stranger-originated life insurance sales, or STOLI. Some states have discouraged the practice of targeting the sick or elderly to buy life insurance policies, when intended for sale to benefit investors, by mandating that policies cannot be resold for five years.