PCI Letter Continues Industry Objection To SL Law Implementation

NU Online News Service, Nov. 16, 3:09 p.m. EST

WASHINGTON–The Property Casualty Insurers Association of America (PCI) said the model law proposed by a state regulatory task force to implement the surplus lines modernization law does not support the intent of the federal law.

Nor, PCI said in a letter to the National Association of Insurance Commissioners' task force, does the proposed model law "fulfill the spirit and letter" of the law, the Nonadmitted and Reinsurance Reform Act (NRRA).

PCI's letter adds the association's voice to six other trade groups that raised objections to the law's implementation.

The proposed model law is known as the Nonadmitted Insurance Multi-State Agreement (NIMA). It was approved by the NAIC task force on Nov. 3.

"For years, industry educated Congress on the need and benefit of NRRA to create a streamlined tax system that involved uniform requirements, forms and procedures," the PCI letter says. "NIMA not only fails to address that uniformity standard, but it creates an uncertain taxing arrangement via an 'agreement' between insurance commissioners with questionable binding authority."

The letter was signed by David Kodama, PCI senior director, research and policy analysis.

In the letter, Mr. Kodama said the proposed model law violates the NRRA requirement that "no state other than the home state may require any premium tax payments for nonadmitted insurance."

The NIMA proposal instead has each participating state agreeing to "require" payment of their applicable surplus lines premium taxes via a clearinghouse, Mr. Kodama said.

He added that the proposed model law "perpetuates burdensome data reporting."

Specifically, he said the proposed model law as drafted will require detailed data reporting for policies delivered by brokers for the sole purpose of remitting taxes on surplus lines policies with exposures in multiple states.

"The NIMA system will continue to require complex reporting systems that Congress sought to streamline through the new law," Mr. Kodama said.

The model law crafted by the task force is designed to implement a law that was incorporated into the Dodd-Frank financial services reform legislation. The law was signed in early August by President Obama.

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 "principal place of business" for the insured.

Those rules include diligent search requirements (declinations), premium tax allocations and eligibility standards.