NU Online News Service, June 16, 2:58 p.m.EST

Florida's way of implementing federal surplus lines legislationis coming under heavy fire from industry trade groups.

The Florida Office of Insurance Regulation has announced itentered into the multi-agency Non-admitted Insurance Multi-StateAgreement (NIMA) to comply with the July 21 deadline forimplementation of the Non-admitted and Reinsurance Reform Act of2010—a component of the Dodd-Frank financial services reformbill.

Richard Bouhan, executive director of the National Associationof Professional Surplus Lines Offices (NAPSLO), says Florida'sdecision to go with NIMA reinstates the type of tax system that theDodd-Frank bill tried to eliminate.

"Instead of relying upon the home-state tax rate, NIMA attemptsto impose the taxes, fees and assessments of multiple states for asingle policy based upon dozens of different allocation formulassuch as sales, receipts, employees, etc.," Bouhan says.

"NIMA is basically the same system that Congress was seeking toreform," he adds.

Bouhan also says Florida's decision to sign the contract"doesn't mean that the NIMA clearinghouse will become operationalor that states will ultimately share revenue."

He says it is "not clear why any state, much less a large state,would stay in the NIMA system if it would cause a loss of revenueto the state."

If the NIMA clearinghouse becomes operational, some states willlose tax revenue and some states will gain revenue, Bouhanexplains.

Industry trade groups, including NAPSLO, the American InsuranceAssociation (AIA), and the Property Casualty Insurers Associationof America (PCI), are supporting an alternative compact calledSLIMPACT-Lite, or Surplus Lines Insurance Multi-State ComplianceCompact, which is promoted by state legislators, including theNational Conference of Insurance Legislators (NCOIL).

Other groups supporting SLIMPACT-Lite include the NationalCouncil of State Legislatures (NCSL) and the Council of StateGovernments.

SLIMPACT is nearing the support of the 10 states needed to beginimplementation of the program.

Reacting to Florida's announcement, Willem O. Rijksen, vicepresident of public affairs for AIA says, "AIA continues to beconcerned with NIMA's shortcomings, including unnecessary andburdensome reporting requirements as well as the ability under theNIMA structure to maintain data confidentiality."

Echoing the sentiment, William Stander, assistant vice presidentof state government relations for PCI, says he remains "concernedthat the NIMA approach does not address some important streamliningrequirements of the Dodd-Frank Act, such as uniform surplus lineseligibility requirements and exemptions for certain commercialpurchasers."

Under the new federal law, states that fail to adopt some meansof tax allocation system by the July 21 deadline will be subject toa single state taxation that allows the home state to retain 100percent of the tax on the gross premium effective July 21.

Five states—New York, California, Texas, Florida andLouisiana—comprise approximately 55.4 percent of the nation'snon-admitted revenues. Without the agreement, Florida stood to losean estimated $15 to $20 million per year in premium tax.

"Florida and the other participating states are leading thenation in the modernization of the reporting process for surpluslines premium," says Florida Insurance Commissioner Kevin McCarty."I would especially like to recognize the National Association ofInsurance Commissioners (NAIC) for their leadership with the taskforce and in creating this new agreement."

The OIR notes, "Florida, Mississippi and Hawaii are the leadstates in forming this agreement but other states are expected tojoin."

Bouhan says that among potential obstacles to the long-termviability of the NIMA clearinghouse is that some states will avoidthe NIMA system if their policyholders experience a tax increaseafter they join NIMA.

For example, he says, joining the NIMA tax compact couldrepresent a tax increase for some Hawaiian policyholders becausethey would face paying the higher assessments charged by Floridaand Mississippi. Many states are simply unwilling to impose a taxincrease of any size.

"Many issues need to be resolved before states could beginsharing revenue," says Bouhan, adding that the creation of aclearinghouse for the states to share tax revenue will requirecompliance with state procurement laws.

"In addition, NAPSLO is concerned that NIMA imposes a burdensomedata reporting system on policyholders and brokers, since much ofthe required data would have to be created outside of the normalcourse of business," Bouhan adds.