WASHINGTON–Federal legislation mandating uniform rules forsurplus lines carriers and brokers was heartily endorsed Wednesdayby witnesses testifying at a House Financial Services Committeehearing on the bill.

But state regulators did not participate in the hearing, andseveral members of the committee used the hearing as a platform topropose further steps that Congress could take to preempt stateregulation, including creating an optional federal charter forinsurers.

Another proposal was that the Committee re-examine whether theNational Association of Registered Agents and Brokers proposalfirst used in the 1999 Gramm-Leach-Bliley Act should be retooled toforce more states into the fold, especially the larger ones stillmissing in action–as well as to ensure continued statecompliance.

At issue in the hearing was a legislative proposal by Reps.Ginny Brown-Waite, R-Fla., and Dennis Moore, D-Kan., theNon-admitted and Reinsurance Reform Act, H.R. 5637. The bill wouldestablish a uniform system of premium tax allocation and collectionfor surplus lines, and bar states from asserting theextraterritorial application of their laws.

The legislation “is a very targeted remedy to an identifiedproblem,” said Rep. Richard Baker, R-La., the chairman of theCapital Markets Subcommittee, whose staff drafted the bill.

Rep. Brown-Waite explained that brokers and carriers dealing insurplus lines coverage over multiple states face “myriad” state taxand licensing and other requirements, adding that “often times,these regulations will conflict with each other.”

H.R. 5637 seeks to remedy the problem by establishing a “homestate” system. Here the state of the insured's domicile would serveas the authority for a multistate surplus lines insurancetransaction. Premium taxes would be paid entirely to that state,which would then distribute the funds to the other states.

Scott Sinder, general counsel for the Council of InsuranceAgents and Brokers, said the group “has been seeking this type ofreform for decades,” adding that the myriad of state rules andregulations governing nonadmitted insurance coverage places a heavyburden on a broker seeking to obtain coverage for a multistaterisk.

Brokers and buyers seeking to obtain surplus lines coverage arefaced with a number of burdensome requirements, including how topay premium taxes, said Janice Ochenkowski, vice president of theRisk and Insurance Management Society and senior vice president,risk management, for Chicago-based property manager Jones LangLaSalle.

She said the transactions occur in one of three ways. In somestates, the calculation and payment of taxes is handled by thebroker or agent, while in others the buyer is responsible.

In some states however, she noted, the broker is paid forpremium taxes and calculates how much and where each payment shouldbe made. The broker then is required to send the money back to thebuyer, who then sends it to the various regulators.

Richard Bouhan, executive director and general counsel for theNational Association of Professional Surplus Lines Offices, said hehas been working with the NAIC on surplus lines tax issues for “adecade and a half” but has met with little success in trying toenact a multistate solution.

NAPSLO proposed an interstate compact to deal with premium taxallocation issues as recently as the most recent NAIC meeting, Mr.Bouhan said, adding that the idea was “panned” by the NAIC SurplusLines Task Force. “We've just not been successful,” he said, notingthat it is understandably difficult to reach a consensus on issuesamong 50 jurisdictions.

As one of the authors of the State Modernization and RegulatoryTransparency (SMART) Act along with full committee Chairman MikeOxley, R-Ohio, Rep. Baker asked the witnesses if H.R. 5637 wouldserve as an effective “test case” for the approach as the morebroad-based SMART effort has run aground due to strong oppositionfrom the states.

Tom Minkler, chairman of the Government Affairs Committee forthe Independent Insurance Agents and Brokers of America, agreedthat the bill could serve the purpose of opening the door forbroader federal standards legislation. “This is actually thebeginning of SMART,” he said.

No member of the NAIC was at the hearing to offer testimony,which was a concern for Rep. Paul Kanjorski, D-Pa. “Before moving,we need to hear from the NAIC,” Rep. Kanjorski said, noting that“good public policy” should include input from all interestedparties, and that the NAIC is “certainly interested” in surpluslines issues. “Even if we ultimately disagree, we must engage themin constructive dialogue,” he said.