Nonadmitted bill introduced in House & Senate

Federal Issues
by Richard M. Bouhan
Executive Director

Significant regulatory reform of the surplus lines insurance marketplace is a step closer to reality through the recent introduction of the "Nonadmitted and Reinsurance Reform Act of 2007"  (H.R. 1065) by Rep. Dennis Moore (D-KS) in the U.S. House and a similar bill (S929) by Senators Mel Martinez (R-FL) and Bill Nelson (D-FL) in the Senate.

If enacted, H.R. 1065 & S 929, will simplify and streamline the regulation of the excess and surplus lines business without diminishing consumer protections and provide consumers with more opportunities to secure property/liability insurance from the E&S marketplace,  particularly in areas where natural disasters have made insurance availability scarce.

Rep. Moore and Rep. Ginny Brown-Waite (R-FL) submitted H.R. 1065, which also had several co-sponsors, including Financial Services Ranking Member Rep. Spencer Bachus (R-AL), and Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises Chairman Paul Kanjorski (D-PA).  

H.R. 1065 and S. 929 are similar to the "Nonadmitted and Reinsurance Reform Act of 2006" (H.R. 5637) that Rep. Moore cosponsored with Rep. Brown-Waite in the last Congress.   H.R. 5637 was approved 417-0 by the House in September, but wasnÕt taken up by the Senate.

The two bills, in part, are aimed at making access to the surplus lines market easier for consumers and the brokers and agents who assist them.

Both the House and Senate would establish national standards for state regulation of the surplus lines and reinsurance markets, including a uniform system of surplus lines premium taxation, elimination of duplicative compliance requirements for multi-state surplus lines transactions and direct access to the surplus lines market for large commercial insurance buyers.

NAPSLO testified before the Financial Services Committee in June 2006 to offer its support for H.R. 5637 and said that the market access, tax and compliance concepts contained in the 2006 bill (and also included in the 2007 bill) were ideas long endorsed by NAPSLO and were essential marketplace reforms.

With H.R. 5637 not being adopted last year, NAPSLO in recent months, through representatives of B&D Consulting (the Association's Washington representative), have contacted members of House Financial Services Committee and the Senate Committee on Banking, Housing and Urban Affairs to urge them to enact the surplus lines and reinsurance reform bill.

NAPSLO's "top legislative priority" in the 100th Session is the passage of surplus lines reforms similar to those found in the "Nonadmitted and Reinsurance Reform Act."

We are pleased that the first steps have been taken in this Congress, to enact this legislation.   NAPSLO expects  the House, again, to endorses the bill shortly and hope the Senate passes takes it up this Spring.

NAPSLO's "Day on the Hill"
As part of NAPSLO's efforts to get HR 1065 passed and also educate House and Senate members about the surplus lines industry, the Association has scheduled a "Day on the Hill" in Washington, D.C. for members of the Legislative Committee, Board of Directors, and any interested members to visit with their Senators and Representatives.

The event is scheduled for April 23-24. Any members interested in participating in the Day on the Hill should contact NAPSLO at (816) 741-3910.

State Issues
by Steven P. Stephan, JD, CPCU, ASLI
Director of Government Relations

State legislators and regulators have been busy this spring with a number of legislative and regulatory items. The following are issues that involve the surplus lines marketplace.

Florida
Florida proposed legislation requiring a surplus lines broker to obtain a declination from Citizens Property and Casualty Co. prior to placing the coverage in the surplus lines market.  NAPSLO prepared written objections and has been  working with the Florida Surplus Lines Association and the Florida Services Office regarding proposed amendments.  It appears the legislation will be amended to require the retail agent to obtain the declination.  Florida also proposed changes to a regulation requiring insurers to file medical malpractice claims data with the Department of Insurance.  The changes would also require surplus lines insurers to report medical malpractice data.  NAPLSO has prepared written objections to the regulation to the extent it applies to surplus lines insurers.

Louisiana
NAPSLO is following Louisiana bulletin 06-06 requiring a disclosure notice to insureds regarding the coverage they purchased.  NAPSLO intends to object to the bulletin to the extent the disclosure notice applies to commercial insurance.  The statute does not specifically mention surplus lines, but the department interpreted the notice to require surplus lines insurers to provide the notice to commercial insureds.  

In addition, NAPSLO representatives recently testified before the Louisiana Property Insurance Task Force on  the role Surplus Lines Insurance plays in a distressed insurance market.

Mississippi
Mississippi has adopted legislation that will require insurers writing home-owners insurance, including surplus lines insurers, to provide a "policyholder's bill of rights" to consumers.  It also requires a disclosure notice regarding the coverages.  NAPSLO objected to the requirement on a number of grounds. However, it is scheduled to become effective April 1, 2007.

NAPSLO also submitted written objections to Mississippi regarding the proposal that surplus lines insurers remit an assessment to the windstorm underwriting association.  The legislation was changed so that the assessment was imposed on the insured, and the assessment is to be collected and remitted by the broker.

NAPSLO is following the developments in the Mississippi Surplus Lines Association (MSLA) stamping office litigation.  The state claimed the funds held by the association, and litigation ensued.  The trial court granted summary judgment in favor of the state.  The MSLA appealed and the appeals court has yet to rule.

Missouri
The Missouri Department of Insurance has proposed regulation (20 CSR6.300) that would allow a retail surplus lines producer to retain a fee without payment of surplus lines tax on the fee.  A tax would be due on any fee charged by a wholesaler.  This regulation would benefit the wholesaler because the wholesaler frequently does not know what fee is charged by the retailer, so accurately calculating the tax is difficult.

In an action by the governor, Missouri Executive Order 07-06 officially transfers responsibility for collection of surplus lines tax from the Insurance Department to the Revenue Department.

Nebraska
NAPSLO has prepared objections to a "Notice" that requires Surplus Lines broker tax filings to identify the company wherein the coverage was placed.  The reason for the change is "to determine if all surplus lines premiums/taxes have been reported/paid to the department."  NAPSLO has prepared a paper explaining why multi-state casualty premium cannot be reconciled with the broker filings.  NAPSLO has submitted the paper to Nebraska and requested that they discontinue efforts to reconcile multi-state casualty premium.

New Mexico
NAPSLO requested that New Mexico revise a rate filing regulation that appears to encompass surplus lines insurers within the definition of Insurer.  Other parts of the regulation were being revised, but those revisions are not relevant to surplus lines insurers.  

It appears New Mexico is not requiring surplus lines companies to submit rate filings, but the regulation includes surplus lines insurers within the definition of "insurer."

Oklahoma
NAPSLO is following the developments in Oklahoma regarding a proposal to eliminate the requirement that coverage cannot be procured from authorized insurers.  The law would continue to require that an affidavit be filed, but it would apparently eliminate the diligent search.  NAPSLO was informally advised that the insurance departmentÕs input would be solicited regarding this bill.  It is likely the insurance department would object to the elimination of the diligent search requirement.  

Texas
NAPSLO is following the developments surrounding Texas legislation authorizing the controller enter into multi-state agreements, such as a compact, for the collection of surplus lines tax and independently procured insurance tax.  

Although the willingness of the state to enter into a compact is a positive development, some of the definitions used in the legislation will likely be in conflict with the definitions in any proposed compact legislation.  It is not clear why the Texas controller has proposed legislation at this point in time when they could have waited until the compact legislation was needed.  NAPSLO and other groups have been working on a proposed interstate compact, but it has not evolved to the stage that the group is proposing legislation.

Washington
NAPSLO is following the developments of Washington Senate Bill 5263 which amends the medical malpractice claims reporting law.  The amendment provided that Òif an unauthorized insurer refuses to report closed claims and asserts a federal exemption or other jurisdictional preemption, the facility or provider must report all data required by this chapter on behalf of an unauthorized insurer.Ó   It is not clear if the term Òjurisdictional preemptionÓ would include a surplus lines insurer.

NAIC
NAPSLO submitted written comments to the NAIC Statistical Information Task Force regarding the Medical Malpractice Closed Claim Reporting Model Law.  NAPSLO focused on the disconnect between the GAOÕs report complaining about the lack of medical malpractice data, and the GAOÕs assumption that additional data would explain rising medical malpractice insurance rates.  The NAIC is seeking the data at the suggestion of the GAO.

The incremental amount of additional closed claims data (now including surplus lines insurers, among others) is not likely to provide any additional insight into rising rates. If the volumes of closed claim data currently available (including licensed company rate filings) is insufficient to explain the rising rates, it is unclear why the GAO would conclude that additional data is needed. It is likely that many factors contributing to rising rates, such as claims inflation, will not be explained by the data.