HOUSTON--The Nonadmitted Insurance Multistate Agreement is now offering states an associate membership at no cost for one year, banking on the prospect that states will see that they are leaving money on the table, and join up.
NIMA, a surplus-lines revenue-sharing agreement, is currently supported by six states and the National Association of Insurance Commissioners.
States can contact NIMA states about using the clearinghouse services for a trial period to allow for the reporting of single and multistate policy information without sharing tax revenue.
They will have access to the filing platform at no cost as they see how much premium they can tax, according to Merle Scheiber, South Dakota insurance director and NIMA chair.
Scheiber unveiled his pitch at the closed insurance commissioners’ roundtable meeting in Houston at the NAIC Spring National meeting and later in an interview.
“Over 20 states contacted us, plus four Midwestern-zone states,” says Scheiber, who adds that insurance regulators from other states were really enthused by the presentation once they saw what was possible.
The data will show the entire premium a state could have taxed, and will be accurate, which is key to providing more premium tax, he said.
The software platform has caught $247 million in premiums since about 2000, with $13 million in saved in the last nine months NIMA has been operation, according to Scheiber’s presentation.
“We need to show them the money,” the insurance director said, regarding the other states’ hesitancy.
Florida Insurance Commissioner and NIMA Secretary, Kevin McCarty, says NIMA is "a proven successful and beneficial tax-sharing arrangement for participating member states. The new sssociate membership is an advantageous concept for those nonmember states who would like reliable statistical information to gauge the potential financial benefits of joining NIMA without a long-term commitment."
“There’s money being left on the table,” says Scheiber’s insurance department deputy, attorney Joshua Andersen.
Andersen notes all six states have banked premium tax on the positive side of the ledger, and as of April 1, NIMA has collected $6 million in reported premium.
NIMA has $266 million in premium reported to date and $11.7 million in taxes reported to date, for the three quarters it has been operational.
“We don’t think states are going to lose as much as they think,” Scheiber said.
Some have suspected Florida is getting the lion’s share of the premiums to tax.
Since Jan. 1, 2012 six states (Alaska, Connecticut, Hawaii, Mississippi, Nebraska and Nevada) have withdrawn from NIMA, leaving Florida, Louisiana, Puerto Rico, South Dakota, Utah and Wyoming as the only jurisdictions to have adopted a uniform system to implement the premium-tax-sharing component of the Nonadmitted and Reinsurance Reform Act, adopted as part of teh Dodd-Frank Act.
NIMA began operation July 1, 2012. It is being run by the Florida Surplus Lines Office. Brokers are now able to submit data to the clearinghouse via the Surplus Lines Information Portal (SLIP).
SLIP utilizes the Surplus Lines Automation Suite (SLAS) platform to collect policy data and calculate surplus-lines taxes and fees on behalf of the NIMA-participating states. It is used by about 10 states and processes more than one-third of the nation’s surplus lines premium, according to Scheiber's presentation. He expects more to join on.
Additionally, NIMA states can review and regulate policy information submitted by brokers in real time using the Regulatory Administration Platform. This provides them with up-to-date, transaction-level information for multistate surplus-lines coverage written in their state.
Scheiber said he does not believe that the currently predominant home-state tax allocation approach other states are using fulfills the spirit of the NRRA statute under the Dodd-Frank Act.
“It’s not uniformity what we have now,” Scheiber said. Groups that now support home state allocation, absent the national clearinghouse that was contemplated before Dodd-Frank was enacted as it is today, backed their approach.
“The spirit of the law is that there should be one set of rules governing access to a multistate placement of a surplus lines product. In 46 jurisdictions, that's what we now have,” said Joel Wood with the Council of Insurance Agents & Brokers (CIAB). CIAB members annually place more than 80 percent of all U.S. insurance products and services protecting industry, business, government and others, according to Congressional testimony.
CIAB has been critical of NIMA's formula because it says it makes it more difficult and costly to comply rather than streamlining the whole tax payment process. The statute allows states to form a compact if they wish to share premium taxes or merely allow only the home state to impose taxes on a nonadmitted insurance transaction.
Brady Kelley, executive director for the National Association of Professional Surplus Lines Offices says the association's members continue to believe the cost of tax sharing will far exceed the reallocation of surplus lines tax dollars among any states participating in a tax sharing arrangement.
“When you break down the relatively low percentage of surplus lines premium on multistate risks, and further break down the proportion of multistate premium allocable outside the insured’s home state, the resulting tax allocations become relatively immaterial,” he says.
“In contrast, the home-state tax approach is working in 46 states representing more than 80 percent of nationwide premium, creating significant efficiencies and dramatically reducing multistate tax filing and tax allocation issues for the surplus lines industry," Kelley said, who is a former CFO for the NAIC.
There are also nine states that have signed up for the Surplus Lines Multistate Compliance Compact (SLIMPACT), but Scheiber doesn’t think it will get to 10.