Surplus Lines Provisions Viewed As 'Quite Secure'

NU Online News Service, May 21, 2:27 p.m. EDT

Association officials believe provisions aimed at modernizing the excess and surplus lines marketplace will be retained in the final version of financial reform legislation that will be reconciled between the House and Senate.

Officials at the Council of Insurance Agents and Brokers called the sections of the Wall Street Reform and Consumer Protection ACT (H.R.-4173) dealing with the surplus lines market a breakthrough, while others praised passage of the measure.

Officials of the National Association of Professional Surplus Lines Offices, Ltd., called Thursday night's passage of the Senate legislation "a giant step toward achieving needed reforms of surplus lines regulation."

"Passage of the bill will allow it to operate more efficiently and effectively," said NAPSLO President Marshall Kath.

Ken Crerar, CIAB president, noted that both the House and Senate versions contain the same nonadmitted and reinsurance language.

"The surplus lines provisions appear to be quite secure," he said.

Mr. Crerar acknowledged that the "end result in the Senate was partisan due to divides on issues that reshape Wall Street."

He noted that the insurance title of the legislation was forged on a bipartisan basis by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee; Sen. Richard Shelby, R-Ala., ranking minority member; and Sen. Tim Johnson, D-S.D., who is likely to become chairman of the committee in the next Congress.

While acknowledging that the industry has been lobbying Congress for eight years for reform, he feels confident the legislation will be enacted soon.

"It is our belief that House and Senate leaders, with administration support and prodding, will be able to forge a compromise that is acceptable enough to reach the requisite numbers of votes in the Senate for enactment," Mr. Crerar said.

The legislation dictates that in any multistate placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed–the "principle place of business" for the insured.

Those rules include diligent search requirements (declinations), premium tax allocations and eligibility standards. The new rules are to go into effect in one year after the bill becomes law.

Mr. Crerar cited the work of Jim Donelan, Louisiana insurance commissioner, and Michael McRaith, Illinois commissioner, as part of the "constructive approach" of the National Association of Insurance Commissioners toward the federal proposal "that enabled us to build a relative consensus that surplus lines should be included in financial reform."

Mr. Crerar said he believes the NAIC will now attempt to create an interstate compact governing surplus lines transactions and premium tax allocations–something the association would support.

Mr. Crerar said in a note to CIAB members that the trade group expects to see "a flurry of efforts to change state law in anticipation of implementation of the surplus lines provisions."

For example, Mr. Crerar said, "many states dictate that only a proportion of premium taxes are due for risks that are located in their states."

"We expect all states to pass laws or regulations that would impose premium taxes in line with the provisions of the new law (wherein they will seek to collect 100 percent of premium taxes for those transactions wherein the insured is located in their jurisdiction)," he said.