WASHINGTON–A trade group official said interested parties have drafted an interstate compact to facilitate uniform regulation and tax allocation of surplus lines insurance products and it will be sent to regulators for further action.
Daniel Maher, executive director of the Excess Line Association and a key member of the interested parties group, said the draft will be forwarded to the National Association of Insurance Commissioners and the National Conference of Insurance Regulators for further action.
In describing its contents he said "The wordsmiths did their work very well."
He made his comments Friday after the interested parties group voiced general support for the document, "the Surplus Lines Insurance Multistate Compliance Compact" (SLIMPACT).
Mr. Maher is promoting SLIMPACT as an alternative to federal regulation as proposed in H.R. 1065, which was passed recently by unanimous vote in the House. His position differs from others within the interested parties group.
Similar legislation has also been introduced in the Senate.
Mr. Maher called the Compact "an alternative" to the federal legislation, because the federal bill "threatens the autonomy of the states."
But, he added, "It is not going to be an easy sell."
He compared the federal bill to efforts by some segments of the industry to have optional federal chartering of insurers. But, he said, the surplus lines business is a state creation. It has "the freedom of form and the freedom of rate" that some elements of the industry see the OFC as providing them.
The surplus lines market "has that, but it is not working out very well," Mr. Maher explained. "That is what the compact is attempting to do," he explained.
But other members of the interested parties group, however, saw the document as a key component of federal regulation.
Ted Pierce, executive director of the Surplus Lines Association of California, said that enactment of H.R. 1065 "is essential to getting the compact" supported by the states. He said that "in most cases brokers will file taxes in one state and that state probably won't do anything to distribute the taxes."
"There must be some kind of federal pressure to get the states to take the compact seriously," he added.
And Phillip Ballinger, executive director of the Surplus Lines Stamping Office of Texas, said "some sort of federal pressure is needed" to provide impetus for states to adopt uniform rules for regulating the surplus lines industry and allocating taxes appropriately between states.
Mr. Ballinger said that what Mr. Pierce had outlined is "logical to happen." He cited House Bill 3315 in Texas, which allows the state comptroller to collect the taxes on multi-state policies and to keep 100 percent of the revenue.
He said the legislation doesn't say "will" or "shall," it just provides "the authority" for the comptroller to retain all taxes it collects.
"You are seeing the first shot across the bow here against the state collection of taxes," Mr. Ballinger concluded.
Mr. Maher sought to differentiate SLIMPACT from the controversy surrounding the efforts of an NAIC life industry task force to develop a model law seeking to speed the approval of policy documents to market.
"Our compact is no product approval document," he said. "It is primarily designed to give direction to the broker on a surplus lines contract as to what state law applies to give every state a fair share of the tax revenues based on the proportion of risk that is in the state."
There is no product control, no product approval, this is very much an administrative compact to help brokers reduce their costs and give the states the revenue they are entitled to, he explained.
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