NU Online News Service, July 21, 3:15 p.m. EDT

State insurance regulators and legislators have a long way to go to implement a federal law that goes into effect today and is meant to modernize surplus-lines regulation.

Despite having a year to pass legislation fully implementing the law, the Nonadmitted and Reinsurance Reform Act (NRRA), only nine states have enacted legislation implementing a clearinghouse process, supported by state legislative groups and industry associations, designed to create an efficient revenue-sharing mechanism. That model is the Surplus Lines Insurance Multistate Compliance Compact, or SLIMPACT.

Another six states, including Florida and Louisiana, have enacted the Nonadmitted Insurance Multistate Agreement (NIMA), a rival model law crafted by a National Association of Insurance Commissioners' task force.

The NRRA mandates that, beginning today, the insured's home state will have jurisdiction over multistate surplus-lines transactions, and only that state can require a tax to be paid by the broker.

The benefit to the industry is that the states "will see a system where there is one-state compliance, one-state taxation, national standards for company eligibility and national exempt commercial purchaser rules," explains Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices (NAPSLO). "These are issues the industry has been working on for a number of years and we are pleased to see this law take effect," he says.

But the intent of the law is for states to share revenues with other states to the extent that the risk is insured in another state. NIMA and SLIMPACT seek to create ways to share those revenues, but states cannot agree on one plan or the other, or neither.

"While a number of states have indicated a willingness to take part in a tax-sharing compact, no compact is in operation," says Dave Leonard, NAPSLO legislative co-chairman. "As of July 21, taxes on all surplus-lines policies will be paid to the home state of the insured, and the home state becomes the sole regulator of the transaction."

Two of the largest states with respect to surplus-lines premiums, California and Texas, have enacted laws that bring state codes in line with the NRRA, but while the laws give those states specific authority to collect premiums, there is no mandate that they share those revenues with other states.

Overall, 43 states have passed legislation to bring their state laws into compliance with the NRRA, according to NAPSLO data. Three states—Iowa, Illinois and Colorado—adjourned without taking action on proposed legislation. Four states—Michigan, Wisconsin Massachusetts, South Carolina—and the District of Columbia have not passed any legislation.

Of the 43 states, Delaware, Oregon and New Jersey have approved legislation, but the governors have not taken action on the bills.

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As Surplus-Lines Law Takes Effect, States Still Unprepared

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