While state commissioners have reservations about federal legislation reforming regulation of surplus lines and reinsurance–especially the reinsurance provisions–their association understands Congress wants to act and won't seek to block it, the group said.

The position of the National Association of Insurance Commissioners, voiced Dec. 19 during a conference call of the NAIC's Reinsurance Task Force, is good news for industry supporters of the legislation.

Sen. Chris Dodd, D-Conn., chair of the Senate Banking Committee, gave the industry another lift a month later, when he committed himself to “examining” surplus lines reform legislation as a priority during a press conference about his committee agenda of 2008.

Walter Bell, Alabama commissioner and president of the NAIC, summed up the NAIC's position on the December conference call, saying that while it was unlikely “all states would find everything in the bill totally acceptable, it appeared there was strong agreement that the bill was considered reasonable.”

During his Jan. 23 press briefing, Sen. Dodd said action on legislation reforming regulation of the surplus lines industry was part of his effort to examine the effect insurance regulation is having on the insurance marketplace.

“There is no question that the insurance market has changed and is now national and international in scope,” Sen. Dodd said.

Joel Wood, senior vice president and chief lobbyist for the Council of Insurance Agents and Brokers, said Sen. Dodd's statement was “right on target.”

Passage of surplus lines legislation “is the top of our [CIAB's] list,” Mr. Wood said. “We have a unique opportunity to align the stars and get a meaningful reform to the finish line in that area, when there is so much division within the industry on other regulatory reform proposals.”

The National Association of Professional Surplus Lines Offices is optimistic the Senate will conduct hearings on the surplus lines measure and expects those hearings to go well, according to NAPSLO's director of communications and technology, Mike Ardis. “We believe by the end of the year the bill will be passed by the Senate and signed into law,” he said.

Mr. Ardis said NAPSLO is also confident “that any concerns about the bill's reinsurance portions will be resolved.”

A key starting point for the Senate is H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007. The House passed the bill overwhelmingly on June 25, 2007. (See accompanying sidebar for details.)

An older version was introduced last February in the Senate as S. 929 by Florida's Bill Nelson, a Democrat, and Mel Martinez, a Republican, as part of a package of bills designed to help Florida with a tight insurance market.

The only difference between the two bills is that the House version contains updated and broadened criteria for what constitutes a risk manager for purposes of purchasing surplus line products, as requested by the Risk and Insurance Management Society.

Mr. Wood called S. 929 a “placeholder bill” and said he anticipates no difficulty in having language inserted that is acceptable to RIMS members.

The next step before congressional hearings is receipt by Congress of a letter from the NAIC's Government Relations Liasion Committee outlining the NAIC's concerns. That letter is expected to be sent to Congress shortly.

Commissioners' concerns, according to a transcript of the Dec. 19 conference call, focus on whether the bill, as currently written, would severely limit the domiciliary state's ability to regulate the reinsurance industry, especially in cases where fronting arrangements were involved.

But Commissioner Bell noted at the meeting that an attempt to preserve multijurisdictional regulation “would not gain any traction among federal legislators.”

Mr. Wood said one reason for optimism is that the surplus lines measure represents “the closest thing you'll ever see to consensus among the relevant stakeholders, in an industry sector that is pretty well known for circular firing squads.”

Mr. Wood said that once the NAIC presents its concerns to Congress, it sets the stage for a hearing and hopefully relatively quick action.

“We've talked to many regulators about this, and there's a strong consensus that this legislation is critical to the success of an interstate compact that would govern multistate placements of surplus lines.”

Will this legislation ever be perfected to the point that every regulator and every other player is in full support?

“It wouldn't be worth doing if that were the case,” Mr. Wood said. “But multistate surplus lines placements are a train wreck. Everybody knows it. Commercial insurance consumers wind up picking up the tab for redundant and conflicting regulations that add cost but not value.”

“This is an area that can, should and will be fixed, notwithstanding any of the remaining, isolated forces of protectionism and bureaucracy,” he said.

Special Reports /

NAIC, Senate Banking Chair On Board To Push E&S Reform Bill

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