Citizens' Issues
Death takes a policy: We answer questions from readers

The story of Joseph Caramadre moved dozens of ProPublica readers to debate the ethics of insurance and corporate behaviour

Readers reacted strongly — and thoughtfully — to our story about how a Rhode Island man recruited terminally ill people so he could cash in on lucrative annuity contracts offered by life insurance companies.
A few scorned Joseph Caramadre, now facing a 66-count criminal indictment, for what they saw as his exploitation of the terminally ill. Most saved their ire for the insurance companies and took less moral offense at Caramadre, noting that the dying participants received money, even if it was much less than Caramadre and his investors made.
Readers also raised some good questions; here are our answers. We will update as we get more.
How is this different from "Dead Peasant” insurance policies? via Dean Muller
So-called "dead-peasant” policies, or corporate-owned life insurance policies (COLI), involve companies taking out life insurance on their employees. This practice landed a number of companies in court a few years ago when employees complained that they didn't know what their employer was doing. More recently, Louisiana's legislature considered allowing the state retirement system to take out life insurance on state employees — as a way to reduce pension debt. The bill appears to have been dropped.
Regular life insurance covers an individual and is paid out when that person dies. Caramadre worked with variable annuities, which are different than life insurance. There are three players in a variable annuity contract: an investor, a beneficiary and someone called an annuitant. The annuitant acts as a "measuring life,” whose death triggers a payout — either the return of an original investment or the value of the investment account, whichever was greater — to the beneficiary. In Caramadre's case, the investor and the beneficiary were one and the same.
One potential similarity to the dead peasant policies involves the allegations made by prosecutors against Caramadre. They maintain that the terminally ill annuitants whose deaths triggered the payouts did not fully understand Caramadre's scheme or their role in it.
How did investors other than Caramadre make money on the scheme? via Justin Burke
There were two ways to profit. Caramadre's investors would put money into a variable annuity, which would then be invested in one of the funds offered by the insurance company. If the fund's value rose, so would the investment. Potentially it could grow to be worth more than the death benefit. But many of the companies also offered death benefit sweeteners, such as bonuses or ratchets. These could make the death benefit worth more than the original investment. For example, if the company offered a 6 percent bonus, investors who put in $1 million would automatically have $60,000 added to the death benefit. When the annuitant died, if the death benefit was greater than the amount of the investment account, the investor would pocket the bonus.
What exactly do prosecutors allege was illegal about this? via Chris
The indictment asserts that Caramadre and his associates obtained the identity information of terminally ill people without their knowledge or consent through misrepresentations and in some cases forgery. They then used this identity information to obtain millions of dollars from insurance companies and bond issuers. The indictment does not allege that the terminally ill people were defrauded of any money themselves. Rather, their identity information was misappropriated so that Caramadre and his associated could profit from their deaths.
Where did Caramadre come up with the $2,000 figure? via Zach
I don't know how Caramadre arrived at $2,000 for the initial payment. In an effort to identify people with terminal illnesses, Caramadre in 2008 advertised that he would give $2,000 to every dying person who contacted him whether or not they agreed to become an annuitant. According to court records, more than 150 received the $2,000. If they wished to participate, they received even more money, typically between $3,000 and $10,000 depending in part on how many contracts they did.


IDBI Bank to use SMERA ratings for MSME lending

IDBI said the ratings from SMERA would help it in expediting credit decision for MSME

Mumbai: Public sector lender IDBI Bank has entered into an agreement with SME Rating Agency of India (SMERA) for using latter's ratings for evaluation of bank's present micro, small and medium enterprises (MSME) portfolios and potential clients, reports PTI.


"The rating would help the bank in expediting credit decision. The customer too will benefit in terms of reduced pricing and organised information flow," IDBI Bank said in a release.


It also said that this would help it reach out to more MSME customers.


ISARC partners with Vijaya Bank for resolution of NPA

The SME Asset Reconstruction Company, which is subsidiary of SIDBI, is also in the process of entering into similar agreements with other state-run banks

Mumbai: India SME Asset Reconstruction Co Ltd (ISARC), an unit of state-run Small Industries Development Bank of India (SIDBI) said it has entered into an agreement with Vijaya Bank to act as a resolution-cum- enforcement agent for the lender for its bad loans, reports PTI.
"Under the agreement, ISARC shall act as a resolution- cum-enforcement agent for the bank for the resolution of its (Vijaya Bank) non-performing assets (NPAs)," it said in a release.
The SME asset reconstruction company is also in the process of entering into similar agreements with other leading PSU banks, it added.
ISARC is registered by RBI as an asset reconstruction company to carry out the business of securitisation or asset reconstruction as per SARFAESI Act 2002.
It usually purchases NPAs from the banks and other financial institutions based on valuation and find resolution of the same by selling it to prospective buyers or restructuring of the liabilities.
The company also provides advisory and resolution services to distressed debt borrowers for resolution of their NPAs through restructuring or compromise settlement.


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