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

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

The representatives of the nonadmitted (excess and surplus lines) industry voiced concerns over the Nonadmitted and Reinsurance Reform Act of 2009, which generally has broad support from industry trade groups.

A wholesale brokerage executive, Jim Keating, president of The Keating Group in Boston, said passage of the legislation aimed at streamlining multistate tax filing requirements and eliminating duplicative surplus lines broker licensing requirements might actually eliminate competitive advantages wholesalers currently have.

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

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

Mr. Hargrove asked for panelists' assessments of internal threats to the E&S industry–like E&S carriers increasingly placing business directly through retail agents.

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

Jim Carey, president and chief executive officer of Admiral Insurance Company, responding to Mr. Hargrove's question from a carrier's perspective, said, "We're still 100 percent wholesale distribution, [but] I don't want to be the last proud dinosaur along the way….We question every year whether we get paid for being exclusively wholesale distribution."

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

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

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

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

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

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

"If there's one thing that can kill us, it's the federal government coming in to change the regulatory system," he remarked.

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

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

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

o Authorizes the states to establish procedures to allocate the premium taxes paid to an insured's home state among the various states in which an insured transacts business. One possible mechanism is an interstate compact.

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

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

o Allows sophisticated commercial purchasers direct access to the surplus lines market, exempting brokers from any state requirement to make a diligent search of the admitted market for such buyers.

Special Reports /

Surplus Lines Bill Passage May Give Us Problems, Say E&S Execs

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