The stranger originated life insurance (Stoli) trend that has grown in the US has sparked an inquiry by the City watchdog to see if the craze is spreading to the UK insurance market.
The practice sees senior citizens targeted by companies such as hedge funds, who buy their life insurance and effectively gamble on that persons’ life expectancy. Hedge funds are privately owned investment companies that are responsible for half of the daily turnover of shares on the London stock market.
The Financial Services Authority (FSA) are said to have found little evidence that this has taken place in Britain, but notably concluded that it was not necessarily illegal.
A spokesman said, “Our conclusion was that it would not be illegal in the UK as such, though it is certainly not in keeping with the traditional basis of life insurance, where the beneficiary is normally a close relative of the insured party.”
Experts have said that exploitative practices used by American companies would be harder to carry out here, “There was some evidence in the US, never proven, that some people might have been offered incentives to hurry up the demise of insured parties in order to get payouts. Of course, that can happen with traditional life insurance.”
Laws governing insurance in the UK are different to those in the US, so it is not possible to take out a policy on somebody else’s life without them knowing about it.
The Association of British Insurers spokesman, Nick Kirwan commented, “In the UK, we have an old insurance law dating back to 1774 which says that you are not allowed to take out a policy on someone else’s life. There has to be an insurable interest. Before the law, there were abuses. You might have had a general whose troops had taken out policies on his life. You can see the effect this might have had on their aim if he was in front of them”
However, it is not against the law to sell a policy to a third party who could then benefit from the sellers death. In theory, you could also be paid to take out a policy on yourself, which you could agree to sell on later. This procedure has been used in the US in the past with the sale of existing life policies being relatively common.
Where a policy holder in the US contracts a terminal illness, they will often sell the policy so they can make use of the money before they die. In the UK this has never been such an issue as the majority of British life insurance companies pay out if their customer becomes terminally ill.
The FSA has rubbished suggestions that the ‘Stoli’ approach will arrive in Britain because of the way they operate compared to the US system. Their system operates on the basis of clear rule, whereas the FSA say they use a ‘principles based model’, allowing the regulator to act if it feels principles like being fair to customers are being violated.
