From the August 1, 2011 issue of National Underwriter Property & Casualty • Subscribe!

NFIP Action Threatened By Debt-Crisis Battle

Fair warning: Washington is consumed with the debt crisis.

Totally caught up in that is the reauthorization of the National Flood Insurance Program (NFIP). The Senate bill was supposed to be marked up July 28 but tentatively was kicked ahead to Aug. 4.

However, Senate staffers and industry lobbyists aren’t optimistic that the Senate will deal with it before leaving for its summer recess.

Without going into the weeds, that makes it likely that Congress will be unable to craft legislation reauthorizing the NFIP for five years before the extension of the current program runs out Sept. 30.

Thus, a short-term extension is growing more likely with every day that passes. Whether a Congress that is already at odds over the debt-limit/tax issue will even want to work together on this issue for the remainder of this two-year session is also in question.

It is entirely comprehensible that a long-term extension may not occur until 2013.


At the same time, one thing the Senate is likely to do on, before or after its scheduled recess date of Aug. 8 is confirm Roy Woodall as the independent member with insurance expertise on the Financial Stability Oversight Council.

Woodall made a favorable impression on the members of the Senate Banking Committee at his confirmation hearing July 26, and the panel will likely act positively on his nomination early in the week of Aug. 1, setting the stage for prompt confirmation of Woodall, and key banking agency regulatory heads, before it departs for the month-long summer recess.


Another critical insurance issue that is in a state of suspended animation is implementation of federal surplus-lines reform and modernization laws.

Illinois has become the latest large state to adopt a regulation implementing the Nonadmitted and Reinsurance Reform Act (NRRA) that doesn’t mandate it share revenues with other states, as applicable.

Through a company bulletin, Illinois says it will tax 100 percent of the premiums for multistate policies “and is not currently participating in any tax-allocation agreement.”

It is joining California and Texas as states among the 10 largest in surplus-lines premiums that have either enacted laws or published regulations that allow it to implement the law without signing onto a premium tax-sharing compact.

Even among states that have agreed to share, there are two rival compacts. The Surplus Lines Insurance Multistate Compliance Compact (SLIMPACT) has nine states that have signed on. The industry supports SLIMPACT because it creates a mechanism or clearinghouse that would ensure that all premium taxes get to the right state.

At the same time, the National Association of Insurance Commissioners (NAIC) announced that 11 states and Puerto Rico have joined the Nonadmitted Insurance Multistate Agreement (NIMA) model, endorsed by the NAIC.

The members of NIMA include Alaska, Nebraska, Nevada, Utah, Florida, Hawaii, Connecticut, Mississippi, Louisiana, South Dakota and Wyoming. This constitutes 22 percent of the surplus-lines market and includes two of the largest 10 states with respect to premiums. 

In a statement, the Florida Office of Insurance Regulation says that NIMA members are predicting that more states will join the compact once a clearinghouse is established and funds are ready to be administered.

Florida has agreed to temporarily house the NIMA website, which will contain the signature documents from member states.

 Insurance-industry producers and underwriters are critical of NIMA, with Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices (NAPSLO) calling it a “bare-bones” tax agreement that provides no means to create an efficient tax-sharing mechanism.

“Under a tax-only compact such as NIMA, some states will contribute more to the compact than they get back, and some states will get back more than they contribute,” Bouhan says.

“This is the nature of such arrangements,” he said. “There has to be more to the arrangement than revenue-sharing that provide benefits to all the participants to keep the compact functioning and together.”

Overall, 44 states and Puerto Rico have either enacted legislation or published rules that bring their state laws into compliance with the NRRA, according to NAPSLO data. 


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