Positive change in surplus lines market regulation recently came one step closer to reality when the Senate Banking Committee included surplus lines reform language in the financial services reform legislation. Identical language for improving surplus lines regulation was included in the House's version of financial services reform legislation, passed earlier this year.
It is likely the Senate will pass financial services reform legislation this year, and if the Senate and House reconcile their differences--and I believe they will--the long-awaited reforms in surplus lines regulation that NAPSLO and others have fought so long to attain will take place.
Enactment will be a big win for both the surplus lines industry and for the future of state insurance regulation. By enacting this legislation and the companion provisions relating to reinsurance, Congress creates standards for more efficient state regulation for two important segments of our industry--not by expanding federal authority or creating a new agency, but by setting the parameters within which states must perform their regulatory process.
The overhaul of the state insurance regulatory system through the creation of "national standards" is not a new idea. National standards have been discussed for many years and were set forth in legislative form in 2006, when the State Modernization and Regulatory Transparency Act, or SMART Act, was drafted.
The SMART Act used complex series of standards and processes that encompassed all segments and aspects of state regulation. Although the SMART Act was too broad to engender significant support, it illustrated how to use national standards to improve the existing state-based regulatory system. In 2006, two congressmen combined the SMART Act's surplus lines and reinsurance provisions and introduced them as the Nonadmitted and Reinsurance Reform Act. That language is now close to becoming law.
A proposal to establish a clearinghouse for quick and easy acquisition of non-resident insurance producer licenses in the various states, known as the National Assn. of Registered Agents and Brokers Reform Act, has been introduced in the House. NAPSLO supports legislation that would improve licensing and other initiatives and propose reasonable national standards for state regulation. The state regulatory system works well, but needs improvements which can be effected through national standards such as those about to be enacted for surplus lines and reinsurance.
