U.S. Surplus Lines Bill Draws Opposition

WASHINGTON--Opposition is growing in Florida and Georgia to federal legislation reforming regulation of surplus lines markets.

Specifically, the Georgia regional brokers say they are concerned they may lose business to companies in larger states and their states may lose revenue to larger states.

At issue is a provision in both House and Senate bills reforming surplus lines regulation that establishes the state regulator of the "principal place of business" of a company as the chief regulator and recipient of taxes on the transaction.

And the board of the Florida Surplus Lines Service has issued a policy statement opposing the bills because it feels enactment of federal legislation "will set a precedent for regulating surplus lines insurance and eliminate the opportunity for states to establish regulatory standards to reflect unique market conditions and provide the consumer protections state policymakers believe important for their constituents."

In addition, the board of the Surplus Office said, "this federal proposal limits the state's taxing authority by limiting its ability to collect the premium receipt tax and related surplus lines policy information."

While the opposition is currently centered among members of the Florida and Georgia Surplus Lines Associations, industry officials said they expect the National Association of Insurance Commissioners to also weigh in soon on the issue.

Steven Stephan, director of government relations for the National Association of Professional Surplus Lines Offices, based in Kansas City, Mo., says he believes some of the concerns are legitimate, although NAPSLO supports the federal regulation.

Mr. Stephan said the concern of the Georgia and Florida surplus lines brokers is that some people and businesses "will try to game" the system by having the taxes go to the state of "principal place of business" or "principal residence" even though the property being insured may be in another state (for example, a vacation home).

However, Mr. Stephan believes the problem can be resolved through a minor change in definition in the legislation and therefore is unlikely to derail industry support of the legislation.

That is especially so, Mr. Stephan said, given that the primary sponsors of the legislation are the Florida senators, Sens. Bill Nelson, D, and Mel Martinez, R.

But Sean Fisher, head of the Florida Surplus Lines Services Office, said opposition is strong in his state to the bill, and he believes the state Surplus Lines Organization has also voiced opposition to the bills to members of the state legislature.

Steven Finver, of Boca Raton, Fla., president of the Florida Surplus Lines Organization, was out of the country and unavailable for comment.

Mr. Fisher said the Surplus Lines Services Office's board supports a voluntary state compact approach as the preferred solution "for providing one set of rules governing all multistate placements (subject to adequate consumer protection), a uniform tax allocation formula and a single policy reporting platform or system."

The specific concern of the Georgia Surplus Lines Association is use of the term "home state" in the definition of the primary regulator under the proposed bills, S. 929 in the Senate and H.R. 1065 as introduced last year in the House.

"This means every multistate insured will be forced to go to its home state to place its nonadmitted insurance for all states," the Georgia Surplus Lines Association argued in comments on its Web site.

"For example, a subsidiary in Florida or Louisiana of a company headquartered in New York will have to go to New York to obtain insurance, or else the surplus lines broker will have to go to New York to place it," the organization said.

It added, "A New York broker is not likely to have a windstorm allocation from a company that will allow the broker to place Florida or Louisiana business, nor is the New York broker likely to understand the needs of a risk in Florida or Louisiana."

The Georgia group said this means that "the Florida or Louisiana broker often will not find an insurer that does business in New York, nor will the Florida or Louisiana broker know how to navigate the New York Insurance Department unless he or she moved down from New York."

"The willing insurer in Florida or Louisiana may not be acceptable to the New York Insurance Department. Examples of problems that would be encountered in various states are infinite," the group explained in its Web site comments. "Your insureds will be the losers."