I'm a “grab the bull by the horns” kind of guy. I don't like tosit back and wait for things to happen and I certainly don't shyaway from new ideas or opportunities, especially if they're goodones. So it's been particularly frustrating to watch what has beenhappening with the state implementation of the Dodd-Frankprovisions regarding surplus lines insurance—the Nonadmitted andReinsurance Reform Act (Editor's note: For more on NRRA, turn to“NRRAGrows Up Fast” in this issue).

Unlike so much else in Dodd-Frank, these provisions weresupported widely on both sides of the aisle, and Council membersare deeply appreciative of the members of Congress who worked toget these important reforms enacted. Surplus lines insurancerepresents about a third of the commercial insurance marketplace,involving insurance risks that tend to be more sophisticated andare largely commercial.

Read Ken A. Crerar's previous Sounding Board article, “Future of Regulation is in States' Hands.”

The surplus lines provisions of Dodd-Frank made it clear thatthe only rules that would govern a multi-state placement of surpluslines products are the rules of the home state of the insured. Thisis simple and straightforward, and, again, all of the majorstakeholders supported these provisions. For many years, stateshave tried and failed to harmonize their laws governing interstatesurplus lines transactions, especially the issue of premium taxallocation. We believed that the enactment of the NRRA provisionsin Dodd-Frank would have afforded the states to collectively devisean interstate compact to govern these transactions.

Instead, states have been all over the map during the past year.Some states have signed on to a compact that would govern allaspects of a surplus lines transaction. Some states have agreedonly to a sharing formula for premium taxes, but the allocationprocedure has yet to be constructed. Some states (especially somebig states) want 100 percent of the premium taxes for insuredsheadquartered in their jurisdictions. Now that the NRRAimplementation date has passed, it is a complete mess.

We're confident in the end that congressional intent will beupheld: a single standard for multi-state surplus linestransactions. However, we also think the states need to know thatall eyes are on them and that, at least from our vantage point,things aren't looking very good right now.

Change is never easy. And we think the surplus lines situationis good evidence that there is justification for very limitedfederal reforms. It is very, very difficult for states tocoordinate and streamline and harmonize in the absence of a broaderpolitical dynamic.

Grabbing any bull by the horns often results in a few cuts andbruises. But ushering out inconsistency and conflict in place of asingle state regulatory system for surplus lines placements is ofvital importance for our industry and will be incredibly beneficialfor the market going forward. It's worth the fight.