The Florida Surplus Lines Service Office Board of Governors opposes the federal Non-Admitted and Reinsurance Reform Act of 2007, which would regulate the placement and taxation of multi-state surplus lines policies. As an alternative, the Board supports a voluntary, state-based solution for providing one set of rules governing taxation of multi-state placements, a uniform tax allocation formula for apportioning taxes, and a single reporting platform or system for submitting tax filings.
Why? The adoption 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 that state policymakers believe are important for their constituents. In addition, 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.
Legislative Provisions And Objections
Only the home state of the insured can require payment of any premium tax for non-admitted (surplus lines) insurance.
1This limitation will negatively impact the tax revenue Florida currently receives on surplus lines premium unless and until the states create a mechanism for collecting and allocating taxes on risks located in Florida that are insured by a resident or business of another state. The estimated loss tax revenue on multi-state policies based upon 2006 premium volume is $21,133,901, reflecting approximately a 10 percent reduction in premium receipts tax revenue. This estimate does not include loss tax revenue on policies issued to non-residents for property or risks located only in Florida, such as vacation homes and investment properties. No reasonable basis for identifying these properties is available.
2Florida would be required to fund and participate in a compact arrangement to collect policy information and taxes as a condition for receiving tax revenue on multi-state risks. Due to Florida constitutional constraints regarding delegation of legislative authority, it would be difficult if not impossible for our state to enter into a compact with the scope of requirements contained in proposed federal legislation.
3Tax revenue from non-admitted policies that are independently procured (IPC) could be negatively impacted since the reporting of these policies and the allocation of taxes due is at the option of the insured's home state. For example, if a state elects not to require the reporting of these policies (many don't currently require reporting), then the premium attributed to Florida risks would not be subject to taxation as currently required by Florida statute. It is estimated that the additional lost tax revenue based upon 2006 IPC taxes is $7,178,475, a 20 percent reduction.
4Taxes owed to Florida would be paid directly to another state, thereby delaying receipt and access to the revenue. For example, some states only require an annual tax payment and filing.
Only the statutory and regulatory requirements of the home state of the insured would apply to the placement of a surplus lines policy.
1Existing consumer protections for Florida policyholders could be pre-empted by the laws of another state.
2Florida claimants could be denied the benefit of consumer protections currently provided for in Florida statutes or regulations since the policy provisions governing third party coverage would be governed by the laws of the home state of the insured.
Only the home state of the insured can require that a surplus lines broker be licensed to sell, solicit, or negotiate non-admitted insurance for that insured.
1Since the surplus lines agent is the licensee in a non-admitted insurance transaction, the State of Florida would loose the ability to govern the agent involved in providing coverage on a risk located in the state when the insured is a resident of or domiciled in another state.
2Surplus lines agents conducting business in Florida would not be subject to a common set of qualifications and licensing requirements.
Only states participating in the NAIC insurer producer database, or its' equivalent can collect agent licensing fees.
1This provision would require participation in a national insurance producer licensing database.
2This provision could limit or restrict the revenues collected from agent licensing fees by the Florida Department of Financial Services.
States may only impose eligibility requirements contained in the Non-Admitted Insurance Model Act on non-admitted insurers domiciled in the U.S. and cannot prohibit the placement of insurance from a non-admitted insurer domiciled outside the U.S. that is listed on the NAIC quarterly listing of alien insurers.
1This provision removes the ability of the state to develop insurer eligibility requirements to protect Florida consumers.
2This limitation would eliminate the extensive analysis and review of applications for non-admitted insurers seeking placement on the approved insurer list.
A surplus lines agent could place coverage for an exempt commercial purchaser without satisfying current diligent search requirements.
1The definition of an exempt commercial purchaser is determined by federal law.
Premium tax definition includes any fee or assessment charged an insured as consideration for insurance.
1The scope of this definition would include assessments against surplus lines policyholders for Citizens Property Insurance Corporation, the Florida Hurricane Catastrophe Fund and other similar entities that may be created. Based upon Citizen assessments collected from surplus lines policyholders for 2006, the lost assessment revenue is estimated to be 17.8 million dollars. The payment of these funds to another state and the accompanying delays in receipt could negatively impact bonding capacity for these entities.
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