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Regulation and Compliance > State Regulation

Regulators Fail to Reach Pact on Surplus Lines and Reinsurance

By Arthur D. Postal

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State regulators and legislators today failed to reach agreement on a model law needed to implement the federal legislation reforming and modernizing regulation of the surplus lines and reinsurance industries.

At the same time, they agreed at the annual meeting of the National Council of Insurance Legislators in Austin that they must act to implement the law before the drop-dead date of June 11, 2011, or Congress is likely to step in.

The NAIC and NCOIL members engaged in a lengthy discussion of the implementation issue at today’s meeting.

Members said that they “have 200 days to act” on an approach “everyone at the state level can support,” according to several people who attended the meeting.

At the summit, NCOIL and NAIC members agreed that the “worst of all possible worlds” would be that some states adopt the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) and other states adopt the Nonadmitted Insurance Multi-State Agreement (NIMA).

If that happens, the officials said, “Congress is likely to step in.”

The debate between NCOIL representatives and members of the National Association of Insurance Commission Surplus Lines Task Force took place at a State Leaders Summit that is part of a working session on financial modernization at the NCOIL annual meeting.

On the agenda was NCOIL action on the proposed SLIMPACT legislative model. NCOIL leadership had proposed the model as an alternative to a proposed NAIC implementation of NIMA, which was approved by the NAIC Surplus Lines Implementation Task Force on Nov. 3.

According to Nicole Allen senior vice president, strategic resources, for the Council of Insurance Agents and Brokers, the so-called “SLIMPACT-Lite” proposal addresses issues associated with the collection and allocation of surplus lines taxes.”

It “also promote the development and adoption of uniform surplus lines regulatory standards in compacting states, including eligibility standards,” she said.

By contrast, the NAIC proposal is running into unanimous opposition from industry.

In a letter sent to the NAIC last Monday, six trade groups contend that the NAIC proposed law “continues, by contract,” the burdensome system that Congress sought to eliminate through the new law.

The model law proposed by the NAIC task force “is worse than the states doing nothing,” said Joel Wood, CIAB senior vice president for government affairs.

“We will take whatever action is necessary to proceed down a path that leads to uniformity,” Mr. Wood added.

The law, the Nonadmitted and Reinsurance Reform Act was incorporated into the Dodd-Frank financial services reform legislation. States are required to act to implement the law by June 2011.

The compromise NCOIL model law, among other things, would authorize a governing commission to establish allocation formulas to help states share premium tax dollars on non-admitted transactions.

It authorizes the new governing commission to devise uniform payment methods and reporting requirements for insureds and surplus lines brokers, national eligibility standards.

But, Mr. Wood said, because NIMA doesn’t establish a formula for states to share premiums, it puts brokers in a position of “refereeing between the states, which they don’t want to do.”

The SLIMPACT proposal was crafted by NCOIL President Rep. Robert Damron, D-Ky. Also representing NCOIL at the summit was president-elect Rep. George Keiser, N.D.

Also representing NCOIL were Rep. Brian Kennedy, D-R.I., and Assemblyman Joseph Morelle, D-N.Y.

Representing the NAIC was James Donelon, Louisiana insurance commissioner and head of the NAIC Surplus Lines Implementation Task Force, and Linda Hall, Alaska commissioner and another member of the task force.

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