Filed Under:Agent Broker, Agency Management

Certain Uncertainty

NRRA gaps and inconsistent state laws leave surplus lines brokers in limbo.

In the presidential candidate debates earlier this year, not moderator asked, "If elected, will you repeal or strengthen the NRRA?" If the question had been asked, it might have elicited a confused, "The what?" or perhaps an impassioned defense of gun owners' rights.

The Nonadmitted and Reinsurance Reform Act (NRRA), which took effect July 21, 2011, is an attempt to resolve interstate squabbles over insurance premium taxes charged on surplus line and direct placements. NRRA created a national definition of an insured's home state and allocated those tax revenues to that state, unless the involved states had joined a multi-state compact providing otherwise. NRRA also sought to create a more predictable system of determining a surplus line carrier's eligibility, again keyed to the home state's requirements, subject to some restrictions. It is an important part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), which has been called the most comprehensive piece of financial industry reform legislation since the Glass-Steagall Act.

Certificates of insurance are a concern for brokers across the country, especially those dealing with multi-state risks and surplus line placements. For example, if the named insured is based in Illinois and the other contracting party is based in Texas, may the surplus line broker and the producing broker comply only with Illinois’ laws regarding certificates, or must they also comply with Texas’s law?

Texas is one of the states that require that nonstandard certificates of insurance be filed for approval prior to use by surplus line brokers and carriers. Texas Senate Bill 425, effective for certificates of insurance issued on and after Jan. 1, 2012, provides that an insurer or agent may not issue a certificate of insurance unless the form of the certificate has been filed with and approved by the Texas Dept. of Insurance or is a standard form deemed approved by the department. Surplus lines brokers and insurers are expressly included in the provisions of the bill. Further, no certificate can be issued if it alters, amends or extends the coverage or terms and conditions provided by the insurance policy referenced on the certificate. A person may not require a broker or insurer to issue any other document or record in addition to, or in lieu of, a certificate of insurance.

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