In today's tax and regulatory environment, innovation is the name of the game. Congress recognized that when it passed the Nonadmitted and Reinsurance Reform Act (NRRA) four years ago. Two years later, the Non-Admitted Insurance Multi-State Association (NIMA) was created and today, its eight member states are seeing (enjoying) the enhanced revenue and greater savings efficiencies that our Surplus Lines Clearinghouse SLIP system has made a reality.
Yet, there are those with ulterior motives, who would disparage this growing success story. In Arthur Postal's Legislative update: Taxation Uniformity remains critical issue (September 15, 2014 on PropertyCasualty360.com) the National Association of Surplus Lines Offices (NAPSLO) continued its role as a peddler of misinformation, using data that its own leadership has already been told is incomplete and incorrect.
There's nothing mysterious about what NIMA does. Simply put, a state that becomes a NIMA member continues to collect the premium tax on home state surplus lines companies' premiums in their state. Then, in exchange for sharing the premium tax collected on policies written by companies from other NIMA states, the state likewise receives a tax share from all those other NIMA states on policies written by companies from the state. So not only does my state of South Dakota collect premium tax on our domiciled companies' policies written in South Dakota, but we also receive a tax share of those same companies' policies written in all the other NIMA member states.
Because the NIMA Clearinghouse allocates premiums to all 50 states, D.C., the U.S. Virgin Islands, and Puerto Rico, any state can visit our webpage and see the amount of that allocated premium that could be taxed if it becomes a NIMA member. Texas and California, for instance, together have nearly $154 million in surplus lines premiums that could have been taxed this year.
NAPSLO's oft-repeated claim that the amount of filing fees is greater than tax dollars shared among NIMA states is incorrect and does a disservice to the compact. In fact, $683 million in multistate premium was reported to the NIMA Clearinghouse in 2013, resulting in $22.8 million in taxes allocated among the NIMA members, at a cost of $2 million in transaction fees.
NAPSLO continues to exclude the "home state" portion of the taxes collected by the NIMA states when citing the tax revenue shared among the states, while including the "home state" tax revenue when calculating the associated clearinghouse costs. The result is an erroneous conclusion; yet, NAPSLO uses this comparison to assert that the cost of administering a tax sharing agreement outweighs the benefits to states, brokers and policyholders.
Since the Clearinghouse system distributes funds among the member states on a net basis electronically, there is no direct or additional expense associated with the allocation of taxes. In fact, the same fee rate is applied to all premium reported to the Clearinghouse that results in the collection of tax revenue, both allocated and retained.
The services provided by the Clearinghouse to brokers and the NIMA states are comparable to those functions performed by national stamping offices. Likewise, the Clearinghouse transaction fee is comparable to most fees charged by stamping offices that provide similar services to the Clearinghouse. The Clearinghouse affords regulatory oversight to a degree that some states don't have, together with stronger fraud detection.
Furthermore, using the same reporting platform and requiring the same set of data elements reduces costs to agencies, as well as promotes uniformity among states, one of the goals of the NRRA.
Since its inception in July 2012, NIMA has allocated $1.42 billion in premiums to all 50 states and territories and distributed $66.3 million in taxes to its member states. Nearly half of those allocated premiums were to non-NIMA member states – premiums that could have been taxed by the allocated state, regardless of the insurer's home state, if that state had been a NIMA member.
This, together with all the other valuable activities performed by the Clearinghouse on behalf of NIMA members, must be considered in providing a true, data-driven analysis of NIMA.
There's one last factor I'm pleased to share. The NIMA Clearinghouse conducted its first annual customer satisfaction survey in August. 98% of customers were satisfied with the Surplus Lines Clearinghouse SLIP system, and 100% of customers were satisfied with Clearinghouse services. We believe that as more states do the math, join NIMA, and realize the enhanced revenue and greater savings efficiencies, the Surplus Lines Clearinghouse will fulfill the clear uniform system envisioned by Congress under NRRA.
Merle Scheiber is South Dakota Insurance Director and NIMA Chairman.
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