NU Online News Service, July 28, 12:00 p.m.EDT

Successful implementation of the federal surplus lines reformlaw is “threatened” by the patchwork way it is being interpreted bythe states, an industry representative told Congress today.

The industry “is increasingly concerned that the Non-admittedand Reinsurance Reform Act (NRRA) is being implemented in manystates…in such a way that they'll make things worse—not better—forsurplus lines stakeholders,” a representative of the NationalAssociation of Professional Surplus Lines Offices (NAPSLO) says intestimony before the Insurance, Housing and Community Subcommitteeof the House Financial Services.

Letha Heaton, president of NAPSLO and vice president, marketing,of Admiral Insurance Company, says, “Unfortunately certain stateinterpretation and implementation of the NRRA has, in NAPSLO'sview, been inconsistent with Congress' intent.”

Heaton focused her testimony on the decision of the NAIC topromote the Nonadmitted Insurance Multistate Agreement, or NIMA, asthe model law best suited to implement the federal law. The law waspassed last July as part of the Dodd-Frank financial servicesreform law.

Heaton says, “States are prioritizing the voluntary tax-sharingprovisions in the NRRA while ignoring the other regulatoryefficiencies intended by the law. Moreover, states are spendingtime and energy focusing on the NIMA even while the NIMA systemremains months away from being operational.”

Heaton says NAPSLO strongly opposes NIMA's currenttax-allocation methodology and says it is wholly unworkable for thevast majority of the industry. If implemented, she adds, it willresult in new costs and fees levied on surplus lines consumers. Aspart of her testimony, Heaton included comments from brokers on thedifficulty they would have in operating under the NIMA allocationsystem.

The law was crafted to make multistate surplus linestransactions and tax payments more uniform, efficient andstreamlined for consumers, businesses and brokers.

It does so by mandating that the insured's home state will bethe only state with jurisdiction over multistate surplus linestransactions and the only state that can require a tax be paid bythe broker.

The states are supposed to implement a compact creating aclearinghouse for the efficient transfer of premium taxes paid tothe home state, but owed to other states based on the risk andexposures in those states.

But while 45 states and Puerto Rico have either enactedlegislation or published rules that bring their state laws intocompliance with the NRRA, the laws have not been uniform.

Some states have enacted NIMA, others have enacted a rivalcompact, called SLIMPACT, which NAPSLO supports, and others haveenacted laws or regulations that bring the states into compliancewith the NRRA but do not require that taxes be shared with otherstates at all.

In separate testimony before the panel, Susan Voss, Iowainsurance commissioner and NAIC president, acknowledged thatNIMA does not transfer broad supervisory authority to a singlecompacting entity, but she notes that it “does provide for a singlepoint of tax filing—the main concern of surplus lines brokers.”

She adds, “Whichever solution is chosen, it is clear that asignificant number of states have acted quickly in the 330 daysthey were given before their systems were preempted byDodd-Frank.”