NU Online News Service, Aug. 4, 3:13 p.m. EDT

State insurance regulators and legislators will discuss later this month possible ways of harmonizing rival compacts designed to implement a surplus lines premium tax-sharing mechanism to implement a recent federal reform law.

According to officials at the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL), the issue will be taken up at a government liaison meeting Aug. 29 as part of the NAIC quarterly meeting in Philadelphia.

The states have come under federal criticism for their unwillingness to hash out uniform rules for allocation of surplus lines premiums, although the law, the Nonadmitted and Reinsurance Reform Act (NRRA), gave them a year to do so.

The talks between NAIC and NCOIL were prompted in particular by a comment at a recent hearing by Rep. Judy Biggert, R-Ill., chair of the Insurance, Housing and Community Subcommittee of the House Financial Services Committee. "Why doesn't NAIC work with the SLIMPACT model instead of creating another model, NIMA?" Biggert asked.

According to several lawyers and lobbyists familiar with the talks, one possible compromise, called "Kentucky" proposal, would allow brokers to rely on the data they submit to the risk underwriter to make the allocation calculations so that each state gets its proper share of the premiums.

Casualty coverages would generally be exempt from premium tax allocation, as was generally the practice before NRRA was implemented.

The proposed compromise would deal with the main industry objection to the Nonadmitted Insurance Multistate Agreement (NIMA), the compact supported by the NAIC. It has been adopted by 11 states and territories that constitute 22 percent of the surplus lines market.

However, one lobbyist who represents the industry cautioned that the talks are at the earliest stages, and predicts that it will be some time before the issue is resolved.

The insurance industry supports SLIMPACT (Surplus Lines Insurance Multistate Compliance Compact) as the mechanism for implementing the NRRA.

Kentucky has enacted legislation endorsing SLIMPACT, which NCOIL supports.

The allocation proposal being considered as a possible compromise is being promoted by Kentucky insurance officials as the mechanism SLIMPACT should adopt to facilitate premium sharing between the states, according to several industry officials.

The NRRA mandates that beginning July 21, 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.

Holly Bakke, former Banking and Insurance Commissioner in New Jersey, says, "The competing surplus lines proposals are the most recent example of our dysfunctional insurance regulatory system."

She adds, "Even if one model can be agreed upon, its implementation is optional with each state deciding whether to adopt the model, change it, or reject it outright as some major jurisdictions apparently plan to do."

In short, Bakke says, despite the best efforts of the NAIC and NCOIL, no mechanism exists that provides for the regulatory uniformity necessary for a modern insurance system that promotes economic growth and protects consumers by controlling costs and offering diverse insurance products."

In response to a request from NU Online News Service, NAIC officials say that there "may be operational issues that SLIMPACT and NIMA states can try to harmonize."

NAIC officials cite, for example, that the allocation methodology may be a place to look for similarities.

The officials say they are "committed to seeing if there are common-sense ways to reduce the compliance burden on brokers while maintaining the necessary level of reporting and supervision of surplus lines transactions."

Special Reports /

NAIC, NCOIL to Work on Harmonizing Surplus Lines Models

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