NU Online News Service, March 23, 2:58 p.m.EDT

The benefits of the surplus-lines-modernization law enacted in2010 are already being felt through greater efficiency in themarketplace and likely lower premiums for customers, according toan official of the National Association of Professional SurplusLines Offices.

Brady Kelley, NAPSLO executive director, made those observationsin comments on the surplus-lines industry before the NetworksFinancial Institute's Insurance Reform Summit, held WednesdayinWashington.

Kelley acknowledged that the law is not being implemented asoriginally envisioned, and as a result it is not the uniformsolution that Congress intended.

The law allowed the states to set up tax-sharing arrangementswhere the home state that is the recipient of the premiums underthe new law is supposed to allocate part of the premium taxes tothe state where the risk is located.

But, as it is playing out, states constituting the majority ofpremiums have determined that establishing a system to allocatepremiums as envisioned is not cost-effective.

Kelley, however, doesn't believe that is necessarily a badthing.

“The benefit of this law is home-state regulation and taxationof a surplus-lines policy,” he said.

He explained that, prior to this law, “you had multi states withjurisdiction over a single policy.

“We are now migrating toward one state that is the home state, asingle set of rules and regulatory oversight of the transaction,”Kelley said.

He contended that the NRRA has had the effect of “making thesystem more efficient for the industry and the customer.”

He said a more efficient regulatory system could lead to lowercompliance costs, which could result in lower premiums.

“Our goal is for a single set of compliance rulesnationwide,” Kelley said. “That was the intent and purpose of thefederal law. It opens up the door for nationwide uniformity tooccur in the future.”

Kelley said he believes that the “potential for tax-sharingarrangements are diminishing as the states continue to implementthe federal law.”

He cited statistics showing that 24 states representing 63percent of surplus-lines premiums have already implemented anapproach where the home state retains 100 percent of the tax.

“Many of the states took this approach in their first attempt toimplement the federal law,” Kelley said. “That seems to be thetrend.”

He said NAPSLO believes this new trend will continue.

The law, the Nonadmitted and Reinsurance Reform Act (NRRA) wentinto effect in July 2011. It was enacted by Congress as part of theDodd-Frank financial-services-reform law.

The states' view of a compromise was to establish compacts toact as clearinghouses for proper allocations of premiums to thestates.

Two rival compacts were established, but neither has been ableto attract enough states as participants to launch operations.