NU Online News Service, March 22, 3:07 p.m. EDT
Kentucky, New Mexico and Ohio have become the first states to enact comprehensive legislation implementing the surplus lines and reinsurance reform and modernization law.
Under the federal modernization law, the Nonadmitted and Reinsurance Reform Act, surplus lines taxes are paid to the insurer's home state. Distribution of those taxes is then up to the individual states to share proportionally.
To accomplish this, the National Conference of Insurance Legislators (NCOIL) developed the Surplus Lines Insurance Multistate Compliance Compact, or SLIMPACT, which is an agreement between states that would promote uniformity of regulation and sharing of taxes.
It is being supported by other state government groups and the insurance industry.
At the same time, the National Association of Insurance Commissioners (NAIC) has been pushing its competing compact, the Nonadmitted Insurance Multistate Agreement, or NIMA.
Louisiana Insurance Commissioner James J. Donelon, who was chair of the NAIC's Surplus Lines Implementation Task Force at the time, acknowledges that NIMA is not a broad regulatory compact and only addresses the collection of taxes.
Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices Ltd. (NAPSLO), cautions that the commission or clearinghouse needed to ensure that the domicile state has the authority to allocate premiums to all other affected states does not go into effect under the law until 10 states establish the compact.
"Until that happens, the domicile state under the law will not have the authority to allocate the appropriate share of the taxes to other states."
Under the law, he says, "the state of domicile has sole authority to collect the tax from the broker who sells the insurance."
The legislation in Kentucky and New Mexico will officially form SLIMPACT, and those states become the first two of the 10 states needed to create the commission that would dole out taxes to the appropriate states. Other states, led by Ohio, North Dakota and Indiana—where legislation has already cleared the Senate—are also considering SLIMPACT legislation. SLIMPACT legislation is also working its way through the legislative process in Alabama, Connecticut, Kansas, Maryland, New York, Rhode Island, Tennessee, Texas and Vermont.
The Ohio legislation requires the insurance superintendent to conduct a fiscal analysis of entering into a multistate agreement or compact, and authorizes the regulator to enter into SLIMPACT if it is found to be advantageous to the state.
Alternately, it allows the state insurance regulator to join into a different multistate agreement or compact if found to be in the state's financial best interest and authorized by the general assembly.
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