WHOLESALERS and insurers attending last month's annual meeting of the National Association of Professional Surplus Lines Offices were given an optimistic assessment of the outlook for their top legislative priority, the Nonadmitted and Reinsurance Reform Act (H.R. 5637). The association's lobbyists held out hope it would get through the House of Representatives before Congress adjourned–which the bill did about two weeks later–while adding that Senate consideration probably would have to wait until next year. Still, the lobbyists said the odds for eventual enactment look good.

“Your issues are uniquely bipartisan,” said Andrew L. Ehrlich, senior vice president of B&D Consulting, which represents NAPSLO on Capitol Hill.

H.R. 5637 would streamline regulation of the excess and surplus-lines marketplace. Among other things, it would address a major headache afflicting surplus-lines brokers: the requirement to remit premium taxes in multiple states for commercial insureds that have widespread operations. The act would bar any state, other than an insurance buyer's home state, from requiring the payment of premium taxes on a surplus-lines transaction. Rather, the insured's home state could require the buyer (or the buyer's broker) to file tax-allocation reports annually, showing how much of the insured's premium is tied to exposures in other states. Then the home state could distribute the appropriate amount of premium taxes to those states. H.R. 5637 encourages the creation of interstate compacts or other mechanisms to facilitate such tax sharing.

Maria Berthoud, a partner with B&D Consulting, said that getting the Senate to act on the bill this year will be a challenge, although she said she has not given up. She said the main obstacles in the Senate seem to be “a lack of understanding” of the bill as well a full election-year agenda.

Other than for awards presentations and a morning breakfast, at which attendees were given an overview of congressional races as well as the update on H.R. 5637, not much was on the agenda. Rather, as usual at these conventions, the bulk of the time was devoted to nonstop meetings between insurers and surplus-lines brokers. NAPSLO executives said a record crowd of more than 3,300 turned out for the convention. For four days, the attendees filled two enormous “broker lounges,” as well as restaurants, lobbies and insurance-company suites throughout the Chicago Hilton.

The size of the convention has grown steadily. Some attributed the big turnout this year to the venue, which made it easy for the Chicago area's large surplus-lines community to attend. Others said the size of the crowd could have been boosted by insurance-company representatives pulling out the stops in a softening market to make the 2006 revenue numbers they set for themselves a year ago.

Many insurers came to the convention to seek new production sources. Others showed up mainly to coordinate with their current wholesalers. One carrier executive, for instance, told me that he declined to meet with new brokers at the meeting. Rather, he and his staff reserved all their time for discussions with more than 20 of their current brokers. In three days, he pointed out, they could meet with more brokers than they could in several weeks in the field, and at considerably less expense. Everyone I spoke with described the process as rewarding–and also exhausting.

A.M. Best's annual report on the surplus-lines market was released at the convention. Since the end of the hard market, in 2002, premium growth has been relatively flat, the report noted, and in 2005 stood at $33.3 billion, or 12.65% of the total commercial-lines market. The report cited increasing competition from standard insurers for large accounts–one wholesaler at the convention told me that any account in his portfolio larger than $50,000 “is gone”–but said the E&S market continues to be well-served by disciplined underwriting, which produced a 93.2% combined ratio in 2005.

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Three cheers for the agents associations opposing the continuing assault on profit-based contingent commissions. In the past year, New York Attorney General Eliot Spitzer and various other state attorneys general have reached settlements with several insurers, including ACE, AIG, St. Paul Travelers and Zurich. The carriers were accused of paying kickbacks in the form of volume-based contingencies to several national brokers. The settlements are causing unfair aggravation for the vast majority of agents and brokers who had nothing to do with the original scandal, and they threaten a legitimate form of compensation on which most agents greatly rely

Late last month, the Independent Insurance Agents and Brokers of America filed a friend-of-the-court brief opposing part of the proposed settlement with Zurich–specifically a requirement that agents and brokers distribute to insureds a form describing Zurich's producer compensation practices. Bob Rusbuldt, IIABA's CEO, said the responsibility–not to mention the cost–should be Zurich's, not that of agents and brokers who were not part of the litigation. The brief also mentioned that consumers could be inundated with disclosures if other insurers follow this practice, which the IIABA said probably would lead to confusion rather than clarity.

The Big 'I' and the National Association of Professional Insurance Agents, which filed its own brief, also protested the attack on contingent commissions, which both say will mainly harm smaller agencies, leading to fewer choices for consumers. The settlements typically bar the defendants from paying contingencies on excess casualty business through 2008 and from paying them on lines in which insurers representing 65% of the market don't pay contingencies.

“Despite public statements from officials to the contrary,” said Len Brevik, PIA executive vice president and CEO, “these settlement agreements are increasingly being crafted in a manner that seeks to bring about the total elimination of contingency commissions.”

That would be as big an injustice as the one the attorneys general are trying to correct.

Special Reports /

What's Going On: Brokers updated on H.R. 5637 at NAPSLO convention

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