IF ANYONE would have guessed a year ago what the major insurance topic of 2005 would be, he or she probably would have assumed that it would be the congressional debate over federal versus state regulation of insurance. New York Attorney General Elliott Spitzer's announcements last October of inves- tigations into alleged fraud, “bid rigging” and other illegal practices in the insurance industry, however, may have trumped the federal/state regulatory discussions. Nonetheless, there is still a good chance Congress will move forward on the insurance regulation issue, and that could have major implications for all segments of the industry.

Changes in the market and a movement toward a global economy have encouraged some people to consider ways to make the insurance industry work more efficiently. One idea is to make the insurance industry more like the banking industry by allowing insurers to choose to be chartered and regulated by either the federal or state government.

NAPSLO has always believed that insurance is best regulated at the state level, however. If changes are to be made, we would prefer to have national standards that would be implemented by the states, rather than federal regulation.

Certainly, there is room for improvement. Currently, state surplus-lines tax laws are a labyrinth of conflicting and confusing rules and regulations. The system is so complex, and compliance is so difficult, that often it is impossible for a surplus-lines broker to fulfill its tax allocation and remittance obligations. This is particularly true for multistate risks.

Surplus-lines brokers and insurers face three difficulties:

Allocation and payment of state surplus-lines premium taxes.
Costly and multiple compliance requirements on multistate risks.
A lack of understanding on the part of state insurance departments of the role and purpose of the surplus-lines market and its benefit to consumers.
Since the advent of nonresident surplus-lines licenses in virtually all states over the past five years, more and more multistate surplus-lines risks are subject to multiple state compliance. Currently 42 states offer reciprocal licenses. However, brokers continue to face a number of barriers in their attempts to procure the licenses, and the system is not efficiently reciprocal as intended.

Special Reports /

Insurance regulation, contingencies are top priorities for NAPSLO

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