WASHINGTON–Legislation designed to ease the regulatory burdens on surplus lines insurers was approved by a House Financial Services Subcommittee today.

The bill is likely to be taken up on the House floor in September, industry officials said.

Although the measure was approved by a voice vote with no opposition, some members argued that more work needs to be done on the bill to alleviate the concerns of the National Association of Insurance Commissioners and others.

Rep. Richard Baker, R-La., the chairman of the subcommittee, said the bill “focuses on two specific sectors of the market that are, in my opinion, in need of reform.”

Specifically, he said, the bill worked to help streamline the surplus lines market and protect reinsurance arbitration agreements from some state regulators who have been trying to apply their state's laws extraterritorially.

Rep. Baker noted that many interested parties, including surplus lines insurers, buyers and brokers, had expressed their support for the bill, and that the committee has also received input from the NAIC and “incorporated many of their recommendations into the bill.”

Among the changes made, Rep. Baker said, was the inclusion of language that “encourages the states to work together and form a traditional compact or some other mechanism” for the allocation of premium taxes.

Another change would add 12 months to the amount of time the states would have to work out such an arrangement. Absent such a mechanism, the bill would mandate that all premium taxes on multistate surplus lines contracts be paid to the insured's home state, which would then be charged with allocating the funds accordingly.

Rep. Paul Kanjorski, D-Penn., the ranking member of the subcommittee, said the bill has been put on a surprisingly fast track through the committee. “We have moved unusually fast” to bring the bill, HR 5637, to a vote, he said.

Rep. Kanjorski thanked Rep. Baker for consulting with the NAIC, noting that committee staffers had done a great deal to incorporate their recommendations into the bill.

He added, however, that more work would need to be done on the bill before it is voted on by the full committee, in such areas as due diligence and disclosure requirements and ensuring that state guaranty funds would not be weakened.

“The professed intent of the bill is to streamline regulation, not deregulate surplus lines,” the congressman said.

Additionally, Rep. Kanjorski mentioned that the Consumer Federation of America had written a letter to him and other committee members expressing its opposition to the bill.

“We need to tread carefully when considering such matters,” he said, adding another concern that the bill's stated definition of the term “qualified risk manager” was overly broad and ran afoul of an agreement reached between Republicans and Democrats during the debate on extending the Terrorism Risk Insurance Act.

“This bill would allow an entry-level recent college graduate with a degree in risk management to serve as a qualified risk manager,” he said.

In response, Joel Wood, senior vice president, government affairs at the Council of Insurance Agents and Brokers, said, “The CFA does not represent the consumers of surplus lines products; RIMS [Risk and Insurance Management Society] does.

“It's a shame that in their incessant hatefulness toward the industry, they've come down on the side of nanny-state bureaucracy to the detriment of real consumers, who they don't represent,” he added.

“Fortunately, this legislation enjoys strong bipartisan support from across the political spectrum, and the CFA remarks will get the consideration they deserve,” he said.

The Independent Insurance Agents and Brokers of America applauded the bill's approval by the subcommittee.

“This is a good piece of legislation that will help alleviate the inefficiencies and expenses which ultimately affect policyholders, in addition to independent agents and brokers,” said Charles Symington, the IIABA senior vice president of government affairs and federal relations.

Overall, Rep. Kanjorski expressed some concern that the passage of “piecemeal reforms” such as HR 5637 could hurt the chances of more comprehensive legislation, such as the proposal to create an optional federal charter. He supported the bill, however, noting that he would not “let the perfect become the enemy of the good.”

Rep. Baker took a different view of the bill, seeing it as a stepping stone to further reform rather than a potential impediment.

HR 5637, he said, is the “first significant step in our longer journey toward uniform insurance regulation.”

Special Reports /

Surplus Lines Bill Wins House Panel Okay

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