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

Successful implementation of the federal surplus lines reform law is "threatened" by the patchwork way it is being interpreted by the states, an industry representative told Congress today.

The industry "is increasingly concerned that the Non-admitted and Reinsurance Reform Act (NRRA) is being implemented in many states…in such a way that they'll make things worse—not better—for surplus lines stakeholders," a representative of the National Association of Professional Surplus Lines Offices (NAPSLO) says in testimony before the Insurance, Housing and Community Subcommittee of the House Financial Services.

Letha Heaton, president of NAPSLO and vice president, marketing, of Admiral Insurance Company, says, "Unfortunately certain state interpretation and implementation of the NRRA has, in NAPSLO's view, been inconsistent with Congress' intent."

Heaton focused her testimony on the decision of the NAIC to promote the Nonadmitted Insurance Multistate Agreement, or NIMA, as the model law best suited to implement the federal law. The law was passed last July as part of the Dodd-Frank financial services reform law.

Heaton says, "States are prioritizing the voluntary tax-sharing provisions in the NRRA while ignoring the other regulatory efficiencies intended by the law. Moreover, states are spending time and energy focusing on the NIMA even while the NIMA system remains months away from being operational."

Heaton says NAPSLO strongly opposes NIMA's current tax-allocation methodology and says it is wholly unworkable for the vast majority of the industry. If implemented, she adds, it will result in new costs and fees levied on surplus lines consumers. As part of her testimony, Heaton included comments from brokers on the difficulty they would have in operating under the NIMA allocation system.

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

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

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

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

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

In separate testimony before the panel, Susan Voss, Iowa insurance commissioner and NAIC president, acknowledged that NIMA does not transfer broad supervisory authority to a single compacting entity, but she notes that it "does provide for a single point of tax filing—the main concern of surplus lines brokers."

She adds, "Whichever solution is chosen, it is clear that a significant number of states have acted quickly in the 330 days they were given before their systems were preempted by Dodd-Frank."

Special Reports /

NAPSLO Official: Patchwork NRRA Implementation Threatens Reforms

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