NU Online News Service, Oct. 14, 2:24 p.m.EDT

ORLANDO, FLA.–Excess and surplus lines insuranceexecutives at a meeting here expressed worries that pending federallegislation for their sector could be a precursor to U.S.regulation for all insurance activity.

The representatives of the nonadmitted (excess and surpluslines) industry voiced concerns over the Nonadmitted andReinsurance Reform Act of 2009, which generally has broad supportfrom industry trade groups.

A wholesale brokerage executive, Jim Keating, president of TheKeating Group in Boston, said passage of the legislation aimed atstreamlining multistate tax filing requirements and eliminatingduplicative surplus lines broker licensing requirements mightactually eliminate competitive advantages wholesalers currentlyhave.

He expressed his views Friday during a panel discussion inOrlando, Fla., at the annual conference of the Kansas City,Mo.-based National Association of Professional Surplus LinesOffices, Ltd. Mr. Keating also voiced worries that the legislationmoves in the direction of inviting federal regulation of theE&S insurance business.

"One of the tangible barriers to entry to our industry is thedifficult nature of handling the [surplus lines] filings," Mr.Keating said, responding to a question posed by panel moderatorGlenn Hargrove, an industry consultant who once led wholesalerCrump Insurance Services.

Mr. Hargrove asked for panelists' assessments of internalthreats to the E&S industry–like E&S carriers increasinglyplacing business directly through retail agents.

"If we make it easier for retailers" to get licenses and maketax filings, then that trend will continue, Mr. Keating said,explaining that this might be an unintended consequence oflegislation specifically aimed at easing these two burdens forwholesale brokers rather than retailers.

Jim Carey, president and chief executive officer of AdmiralInsurance Company, responding to Mr. Hargrove's question from acarrier's perspective, said, "We're still 100 percent wholesaledistribution, [but] I don't want to be the last proud dinosauralong the way….We question every year whether we get paid for beingexclusively wholesale distribution."

While the wholesale distribution system has made Admiral verysuccessful, "as we watch the world change around us, I will tellyou it's certainly a factor we think about all the time," he said,referring to the placement of business through retailer by otherspecialty insurers.

Continuing with a direct comment on the NRRA legislation, Mr.Carey said, "The other side of that legislation is that it not onlymakes it easier for us in the wholesale business to do business; itcould also make it easier for more retailers to enter the E&Sbusiness."

Mr. Keating said he does see some value in NRRA. "I know theburden that we deal with as far as making state-based surplus linesfilings," especially for national carriers and wholesalers.

"But we write business in most states, and we manage to leveragetechnology" to deal with these requirements efficiently, he said."We can do it well," he added, suggesting that removing the burdensis not worth the increased risk of greater competition from adirect retail model.

Earlier in the session, the two men both said they were alsoworried about an external threat to the E&S business–theprospect of federal regulation.

"Anytime you bring the federal government in, that scares thehell out of me," Mr. Keating said, characterizing NRRA as a"gift-wrapped invitation to the federal government to come into ourbusiness."

"If there's one thing that can kill us, it's the federalgovernment coming in to change the regulatory system," heremarked.

The Nonadmitted and Reinsurance Reform Act of 2009, or H.R.2571, passed the House Sept. 9. A companion bill, S. 1363, wasintroduced in the Senate in June but still awaits passage.

NRRA does not contain any specific provisions calling forfederal government regulation of the surplus lines industry.Briefly, the legislation:

o Gives the home state of an insured exclusive authority torequire payment of premium tax for nonadmitted insurance.

o Authorizes the states to establish procedures to allocate thepremium taxes paid to an insured's home state among the variousstates in which an insured transacts business. One possiblemechanism is an interstate compact.

o Gives the home state of the insured exclusive regulatoryauthority over nonadmitted insurance placements.

o Declares that only the insured's home state may required asurplus lines broker to be licensed to sell nonadmitted insuranceto the insured.

o Allows sophisticated commercial purchasers direct access tothe surplus lines market, exempting brokers from any staterequirement to make a diligent search of the admitted market forsuch buyers.