Industry Pitches Interstate Compact For Surplus Lines Risks

Members of a surplus lines industry group unveiled a draft proposal for an interstate compact to regulators at the recent National Association of Insurance Commissioners quarterly meeting.

The compact proposes a mechanism for states to work out distribution of surplus lines premium taxes for those risks that cover more than one state.

Surplus lines brokers currently retain the responsibility for apportioning out premium taxes from multistate risks, and have long considered the task burdensome, costly and unwieldy.

Meanwhile, there is federal legislation in the House and Senate (see accompanying story) that would complement the proposed compact by allowing the broker to pay the premium to the home state of the insured and leave it up the states to distribute it.

The House version–HR 1065–suggests that states could set up an interstate compact to distribute the funds, but does not mandate that move.

Dick Bouhan, executive director of the National Association of Professional Surplus Lines Offices, said he expects the House to approve the bill this session, with Senate approval likely but not as soon, since hearings will be required.

While passage of the bill will in a sense solve the brokers' concerns, Mr. Bouhan said an interstate compact will tie up all of the relevant issues.

The industry compact group seeks backing for its proposal from the NAIC and the National Conference of Insurance Legislators, he added.

However, unlike the interstate compact now in operation for review of life products, the surplus lines compact is not an NAIC-driven effort.

Once a consensus draft is achieved with approval from legislative and regulatory groups, Mr. Bouhan said draft compact legislation will be introduced in individual states.