Since it was passed by Congress in 2010, NAPSLO has worked to promote and preserve the intent and clear mandates of the Nonadmitted and Reinsurance Reform Act (NRRA), and the resulting uniformity and efficiencies in surplus lines regulation the NRRA was intended to achieve. The Association believes that, in the four years since its passage, the NRRA’s national framework and establishment of home state regulation and taxation of surplus lines has produced tremendous benefits for our industry by ensuring one state, the home state of the insured, governs multistate risks.
The key reforms intended by the NRRA are to:
- Isolate the regulation and taxation of surplus lines transactions to one state, the home state of the insured;
- establish national uniform eligibility standards for U.S. based insurers who write surplus lines insurance;
- allow a licensed surplus lines broker to procure insurance from non-U.S. based insurers included on the NAIC Quarterly Listing of Alien Insurers;
- and establish a nationwide definition of an Exempt Commercial Purchaser for whom a broker can access the surplus lines market.
While great progress has been made in implementing these reforms, there is still work to be done to bring about the full spectrum of uniformity and efficiency envisioned by Congress. To address these remaining uniformity issues, the NAPSLO Legislative Committee and Board of Directors recently adopted Guiding Principles on Uniformity in State Surplus Lines Regulatory Requirements. The Committee identified a number of key areas where uniform standards are desired and beneficial. NAPSLO will present these principles to individual states as we continue our work to build national uniformity within the state based system of insurance regulation.
The surplus lines marketplace has proven to be an essential part of the national insurance market that operates successfully in the state-based regulatory system, which NAPSLO strongly supports. However, the current state based system can and should become more uniform and efficient. NAPSLO encourages all states to adopt the following uniform procedures for the regulation and taxation of surplus lines brokers and insurers.
Home State Tax Collection
NAPSLO strongly supports home state taxation of the surplus lines market, and all states should adopt the NRRA definition of “home state.” Any adopted definition of “home state” that conflicts with the NRRA definition results in less uniformity and often leads to states disagreeing over which is the insured’s home state.
The home state approach has simplified and improved the regulatory and tax compliance process for the industry and reforms have successfully reduced the cost of surplus lines compliance within the state-based system.
Tax Payment Dates
NAPSLO supports uniformity regarding tax payment dates, as complying with varying state requirements is inefficient and costly which becomes a cost burden for policyholders. States should be limited to use of four dates throughout the year; the first day of March, June, September or December. This approach would decrease costs for policyholders with no sacrifice to accurate reporting and collections.
Uniform Definition of ‘Taxable Premium’
NAPSLO believes that all states should adopt one uniform definition for determining taxable premium so taxes are calculated and treated the same way in each state, in a uniform manner that is consistent with the intention of the NRRA.
States should allow reasonable broker fees in the placement of surplus lines policies as surplus lines placements often require additional work throughout the policy period. Broker fees are not consideration for the policy and should be excluded from premium for tax calculation purposes.
Zero Reports Requirements
The NRRA clarifies that only one state can require a tax payment, and surplus lines brokers must identify a home state for every policy and remit taxes to that state. We believe this makes “zero reports” obsolete, and state requirements for them create unnecessary work with no apparent benefit to the industry or regulatory community.
Acceptance of electronic filings and reports offers improved consistency and efficiency for the states and surplus lines brokers by increasing the timeliness of reporting and reducing costly errors.
Uniform Notice to Insureds
Most states require a surplus lines notice be sent to an insured, indicating that the insured has purchased a surplus lines policy that is not covered by a guaranty fund, and who to contact with questions. However, the required information and presentation varies by state. NAPSLO supports the adoption of uniform language and timing of delivery for the notice.
The NRRA clearly defines criteria for carrier eligibility compliance requirements. NAPSLO believes that states should not impose additional requirements beyond the NRRA. The NAPSLO membership benefits from strong carrier solvency, and therefore NAPSLO supports strong solvency review. However, states implementing voluntary listing with additional solvency review should be limited to information readily available through the domiciliary state of National Association of Insurance Commissioners (NAIC) database.
NAPSLO believes that uniformity and reciprocity among and between the states in areas of producer licensing and taxation are desirable, and that the adoption of national standards could be a positive step in improving the efficiency and effectiveness of the state regulatory system. We will continue to work toward complete and uniform implementation of the NRRA as well as these NAPSLO Guiding Principles, which we believe are in the best interest of the surplus lines industry and its consumers.