As of July 21, per the Nonadmitted and Reinsurance Reform Act (NRRA), insurance brokers and agents will be required to remit premium taxes only to the home state of the insured.

But with less than two months to go before NRRA becomes the law of the land, clarity and uniformity in regulation of the nonadmitted or surplus-lines industry seems as distant as it was before the landmark reform-and-modernization legislation was enacted by Congress as part of the Dodd-Frank financial-services law.

Because only 27 states have passed laws implementing the NRRA as of now—and because the legislation they have passed implementing the law is all over the map—the stage is being set for another War Between the States.

One implication of all this is that larger states could have a truly advantageous position. States like New York, California, Texas, Florida and Louisiana comprise approximately 55.4 percent of the nation's nonadmitted revenues, so under the present situation, smaller states would have to go to them to secure their share of the premium taxes.

The legislation supported by some industry groups and groups of legislators—such as the National Conference of Insurance Legislators and the Council of State Governments—is the Surplus Lines Insurance Multistate Compliance Compact, or SLIMPACT. This compact complies with the legislative intent of the NRRA by establishing a system where states can properly disburse the premium revenue to the other appropriate states.

Of the 27 states whose legislatures have approved NRRA compliance legislation, six states did not include wording to authorize a compact. Nebraska's legislation only authorizes the use of the Nonadmitted Insurance Multistate Agreement (NIMA), seven states authorized SLIMPACT-lite and 13 states authorized a compact in general.

Several of the states authorizing a compact have language in the bills requiring the passage of additional legislation, or require that the insurance department conduct an examination of benefits and costs to the state and then present the findings before joining a compact.

The industry generally views NIMA as falling far short of the goal of the NRRA, which is providing the insured's home state with the authority to collect all the tax from the broker who sells the insurance (and then leaving it up to the state to determine whether and how to distribute parts of the tax to states where the purchaser of the insurance also maintains facilities).

Louisiana Insurance Commissioner James J. Donelon, chair of the NAIC's Surplus Lines Implementation Task Force, acknowledges that NIMA is not a broad regulatory compact and only addresses the collection of taxes.

While states had several years to anticipate the enactment of the NRRA, the current slow pace in establishing a uniform policy means it could take an extensive period to get a compact operation running.

To assist brokers on tax-payment issues, the National Association of Professional Surplus Lines Offices (NAPSLO) has been working with the NAIC and the states to develop model bulletins to provide information to brokers to explain the process that will be in place as of July 21, according to NAPSLO Executive Director Richard Bouhan.

Bouhan notes that the SLIMPACT clearinghouse, needed to allocate premiums to all other affected states, does not go into effect under the law until 10 states establish the compact.

"Until that happens," he said, "there is no authority for SLIMPACT to allocate the appropriate share of taxes to the other participating states."

SYSTEMICALLY IMPORTANT

In other news, federal regulators appear to be slowing down their decision-making as to whether a nonbank will be declared systemically important and therefore subject to oversight by the Federal Reserve Board as well as state regulators.

The federal regulators appear to be reacting to pressure from members of Congress, who are being lobbied by insurers clearly concerned about being corralled into the federal regulatory net.

In comments last week at a Senate Banking Committee hearing, the regulators stated clearly that such designations will be limited and will only take place after rules are in place detailing the designation process.

And a key part of such rules will be an analytic framework, the regulators said, another demand of large insurers.

Moreover, acting Comptroller John Walsh says there is "broad consensus" among federal regulators to issue a new proposal on assessing systemic risk before issuing a final rule on what firms are systemically significant.

That means a final decision as to which insurers will be subject to both federal and state regulation under the new Dodd-Frank law is still a number of months away.