The cover story of the March issue of Florida Underwriter discusses insurance issues facing the Florida Legislature and NAIFA-Florida is featured in it.

Florida Underwriter is a great magazine to keep you abreast of the industry in our state. The piece submitted by NAIFA-Florida is attached below:

STOLI is Best Left to Vodka

By Bob Lotane, communications and political affairs director, National Association of Insurance and Financial Advisors - Florida

In an early look toward the 2009 legislative session regarding insurance issues, it appeared things would be relatively quiet on the property insurance front. That certainly changed with State Farm’s withdrawal announcement and the release of the report from the Citizens Property Insurance Corp. Mission Review Task Force. Both of these issues are significant to Florida ’s insurance industry and residents, and we hope lawmakers will seriously consider all the ramifications of the proposals that will surely be presented to them.

In the life insurance arena, the National Association of Insurance and Financial Advisors (NAIFA) has long been in the vanguard of working to limit the threat we see to both consumers and the industry from stranger originated life insurance (STOLI). Thankfully, Insurance Commissioner Kevin McCarty saw the need to investigate STOLI’s potential effects on the market, and last year held a comprehensive informational hearing on the subject.

New STOLI Regulations

This led the Office of Insurance Regulation to provide legislative language to the House and Senate for this session that contains many provisions of the National Association of Insurance Commissioners (NAIC) Viatical Model Act. The viatical model was amended to address STOLI, and we look forward to debate about how STOLI should be regulated in Florida .

In STOLI deals, investors induce seniors to purchase life insurance, loan them money for the premiums, and after the two-year contestability period, assume ownership of the policy. The sooner the person dies, the more profitable the death benefit that the investor(s) collects. Consumers lured into such deals are often unaware of the tax consequences and legal fees. Additionally, they are using up their insurance capacity, which may be needed for future estate planning. STOLI schemes also are expensive to monitor and detect.

The current NAIC model contains many sober features, such as a five-year settlement prohibition on deals that contain STOLI features like life expectancy evaluations, non-recourse financing and settlement guarantees. It protects consumers who have self-financed their premiums and want to sell their policy after the two-year contestability period or at any time for causes such as death of a spouse, divorce, disability, bankruptcy, loss of job, or terminal illness. It prohibits ads that identify insurance as “free” or “no cost,” and it establishes reporting requirements to help regulators identify and stop STOLI transactions.

With our large senior population, life insurance is vital to our state. In 2006 alone, individual life insurance coverage purchased by Floridians totaled $120 billion and group coverage amounted to over $380 billion.

With massive budget deficits at the federal level, Congress has its eye on all sources of revenue, and the tax-exempt buildup inside life insurance policies has not escaped its gaze. In fact, NAIFA-Florida discovered a congressional study that conservatively estimated this buildup over the next five years at $1.5 trillion. Amazingly, this study referred to this as lost revenue.

Taxation of life insurance products would be disastrous. The death benefit received by a widow or an annuity benefit to a retiree must not be reduced for seniors living on fixed or limited incomes. NAIFA began this fight almost 100 years ago when the first income tax code included taxes on life insurance. NAIFA worked personally with President Woodrow Wilson to draft amendments to insert vital tax advantages into these products. The bottom line is this: If life insurance becomes the product of Wall Street fat cats rather than a benefit for widows, orphans and business planning, then Congress will remove its tax advantages.

Taxes, Churning, and Penalties

Another issue in which we will be very involved this session is senior annuity suitability. This follows passage of legislation last year that required a comprehensive analysis when selling annuities to seniors and imposed stiffer penalties for “twisting” or “churning” and for fraudulent use of signatures.

Florida ’s CFO Alex Sink formed the Safeguard Our Seniors Task Force last year, which held meetings across the state to hear testimony, both pro and con, about annuities and other issues involving seniors and insurance. She would like to see even stiffer penalties for abusive annuity sales practices involving seniors because prosecutors are not as likely to take cases that do not carry felony violations (current law classifies these as first-degree misdemeanors).

We continue to support Sink in her efforts to go after the few bad apples who purposefully defraud seniors. However, in assessing the level of penalty that such actions warrant, we also believe that severe penalties require severe tests as to how and when they are imposed, so the wording and details of any emerging legislation will be very important. What we do not want to see is a young or inexperienced advisor facing a jail sentence due to an honest error or because of poor training.

With the desperate budget situation facing lawmakers, we anticipate that all spending and revenue proposals will be considered, and that could include sales taxes on services. Those potentially subject to such a tax dodged a bullet last year when ballot language calling for such taxes was judged to be unconstitutional. Prior to the ruling, NAIFA-Florida obtained pledges from a number of senators and representatives that they would not support a tax on agent commissions. Since, under the Florida Insurance Code, such a tax could not be passed along but would have to come out of commissions, they agreed that it would amount to an income tax, which is not allowed under the state constitution. We will keep a vigilant watch for any efforts to resurrect such a levy.

Finally, we plan to use this year’s required review of exemptions to the public records laws to tighten a loophole we discovered regarding access to sensitive agent information filed with the state. Sink’s office is working closely with us to more fully safeguard this information from the media and others.