The Nonadmitted Insurance Multistate Agreement (NIMA) is now offering states an associate membership at no cost for one year, banking on the prospect that states will see that they have money on the table and join up. The surplus-lines revenue-sharing agreement is currently supported by six states and the NAIC.
States can contact the NIMA states about using the clearinghouse services for a trial period to allow for the reporting of single and multistate policy information without sharing tax revenue.
They will have access to the filing platform at no cost as they see how much premium they can tax, according to Merle Scheiber, South Dakota insurance director and NIMA chair.
Scheiber unveiled his pitch at the closed insurance commissioners’ roundtable meeting in Houston at the NAIC Spring National meeting and later in an interview.
“Over 20 states contacted us, plus four Midwestern zone states,” Scheiber said, saying that insurance regulators from other states were really enthused by the presentation once they saw what was possible.
The data will show the entire premium a state could have taxed, and will be accurate, which is key to providing more premium tax, he said.
The software platform has caught $247 million in premiums since about 2000, with $13 million in saves in the last nine months that NIMA has been operation, according to Scheiber’s presentation.
“We need to show them the money,” the insurance director said, regarding the other states’ hesitancy.
Florida Insurance Commissioner and NIMA Secretary, Kevin McCarty, said NIMA is “a proven successful and beneficial tax-sharing arrangement for participating member states. The new Associate membership is an advantageous concept for those nonmember states who would like reliable statistical information to gauge the potential financial benefits of joining NIMA without a long-term commitment. I encourage states to consider this trial option to see exactly how much premium revenue they could be receiving.”
“There’s money being left on the table,” said Scheiber’s insurance department deputy, attorney Joshua Andersen.
Andersen noted that all six states have banked premium tax on the positive side of the ledger, and that as of April 1, NIMA has collected $ 6 million in reported premium.
NIMA has $266,045,730 in premium reported to date and $11,678,394 in taxes reported to date, for the three quarters it has been operational.
“We don’t think states are going to lose as much as they think,” Scheiber said.
Some have suspected Florida is getting the lion’s share of the premiums to tax.
Since Jan. 1 of last year, six states (Alaska, Connecticut, Hawaii, Mississippi, Nebraska and Nevada) have withdrawn from NIMA, leaving Florida, Louisiana, Puerto Rico, South Dakota, Utah and Wyoming as the only jurisdictions that have adopted a uniform system to implement the premium-tax-sharing component of the NRRA.
NIMA began operation July 1, 2012. It is being run by the Florida Surplus Lines Office, with Tiffany Maruniak serving as the clearinghouse’s manager. Brokers are now able to submit data to the clearinghouse via the Surplus Lines Information Portal (SLIP).
SLIP utilizes the Surplus Lines Automation Suite (SLAS) platform to collect policy data and calculate surplus-lines taxes and fees on behalf of the NIMA participating states.
The SLAS is used to process more than one-third of the nation’s surplus lines premium, according to Scheiber’s presentation. About 10 or so states, from California to New Jersey use the SLAS but are not part of NIMA. Scheiber expects more to join on.
He said he helped convince the SLAS folk that in order to grow and attract more states, they should offer the product at no cost for a year and get states to see how it could benefit them with actual monies and “accuracy, accuracy, accuracy.”
Additionally, NIMA states can review and regulate policy information submitted by brokers in real time using the Regulatory Administration Platform. This provides them with up-to-date, transaction-level information for multistate surplus-lines coverage written in their state.
Scheiber said he does not believe that the currently predominant home state tax allocation approach other states are using fulfills the spirit of the NRRA statute under the Dodd-Frank Act.
“It’s not uniformity what we have now,” Scheiber said. Groups that now support home state allocation, absent the national clearinghouse that was contemplated before Dodd-Frank was enacted as it is today, backed their approach.
After considering various approaches, the NAIC’s old Surplus Lines Implementation Task Force opted to develop an interstate agreement, now known as NIMA, which states could enter into through enabling legislation and other statutory changes to allow full participation in the agreement.
“The spirit of the law is that there should be one set of rules governing access to a multistate placement of a surplus lines product. In 46 jurisdictions, that’s what we now have,” said Joel Wood with the Council of Insurance Agents & Brokers (CIAB). CIAB members annually place more than 80 percent of all U.S. insurance products and services protecting industry, business, government and others, according to Congressional testimony.
CIAB has been critical of NIMA’s formula because it says it makes it more difficult and costly to comply rather than streamlining the whole tax payment process. The statute allows states to form a compact if they wish to share premium taxes or merely allow only the home state to impose taxes on a nonadmitted insurance transaction.
“When Congress considered putting a ‘stick’ in the law to entice all states into a clearinghouse – an approach we supported – states expressed opposition and Congress did not include such an incentive. In the absence of that, and considering the lack of interest in an allocation regime in the overwhelming majority of jurisdictions, we think the law’s spirit is being well upheld with the current home-state mechanism,” Wood said in response.
“No matter how far-flung are an insured’s operations, the home state – its “principle place of business” – is the location of its treasury and thus the risk itself,” Wood added.
Brady Kelley, executive director for the National Association of Professional Surplus Lines Offices (NAPSLO), said that NAPSLO members continue to believe the cost of tax sharing will far exceed the reallocation of surplus lines tax dollars among any states participating in a tax sharing arrangement.
Kelley has his own economic view of the allocations.
“When you break down the relatively low percentage of surplus lines premium on multistate risks, and further break down the proportion of multistate premium allocable outside the insured’s home state, the resulting tax allocations become relatively immaterial,” he said.
“In contrast, the home state tax approach is working in 46 states representing more than 80 percent of nationwide premium, creating significant efficiencies and dramatically reducing multistate tax filing and tax allocation issues for the surplus lines industry,” Kelley said, who is a former CFO for the NAIC.
There are also nine states that have signed up for the Surplus Lines Multistate Compliance Compact (SLIMPACT), but Scheiber doesn’t think it will get to 10.