Legislative Update

TREASURY PROPOSAL

On March 31 U.S. Treasury Secretary Henry Paulson called for sweeping structural changes in the way the government monitors financial markets, including the insurance industry.  

      To address inefficiencies in the state-based insurance regulatory system, the Treasury Department called for an Optional Federal Charter (OFC) for insurers.  The Treasury acknowledged that the OFC debate is difficult and ongoing, but reported that some aspects of the insurance segment require immediate attention.  Treasury recommended that Congress establish an Office of Insurance Oversight (OIO) to focus immediately on key areas of federal interest in the insurance sector.  

The OIO would:

• Exercise newly granted statutory authority to address international regulatory issues such as reinsurance collateral;

• Be the lead regulatory voice in the promotion of international regulatory policy for the U.S.;  

• Have authority to ensure that the NAIC and state insurance regulators achieve the uniform implementation of the declared U.S. international policy goals; and  

• Serve as an advisor to the Secretary of the Treasury on major domestic and international policy issues.

 Once congress passes insurance regulatory reform the OIO would be incorporated into the OFC framework. Although the present version of OFC mentions surplus lines for the first time, the language proposed by NAPSLO was rejected. 

 In response to the Treasury Department proposal, NAPSLO called for the U.S. House and Senate to complete work on the Non-Admitted and Reinsurance Reform Act before pursuing the proposal.  

NRRA

The Non-Admitted and Reinsurance Reform Act (S 929) remains in a “holding pattern” in the Senate, waiting on comments from the National Association of Insurance Commissioners (NAIC), which are expected in early April. The comments have been agreed upon by the Commissioners and were described verbally at the spring NAIC meeting as voicing unanimous support for the core provisions of the bill.    The NAIC comments also request changes to the bill based upon concerns raised by some states.  The fact that the NAIC is suggesting changes, rather than opposing the bill, is a positive development.  

 In the meantime, the NAPSLO led coalition supporting S 929 continues to meet with key staffers and Senators on the Banking, Housing and Urban Affairs Committee.   Unfortunately, more pressing issues, such as subprime mortgage failures, solvency of mono-line financial guarantee insurers, financially weak investment houses and banks are starting to consume much of the attention of both the Banking Committee and the NAIC. The window of opportunity to pass this bill in this Congress may be closed by the end of this summer because the Senate, by that time, will also be distracted by the upcoming elections. 

HR 5611

HR 5611, the National Association of Registered Agents and Brokers Reform Act (NARAB II), was introduced in the House in March. The bill, created and promoted by the IIABA,  would create a non-profit, private membership organization through which insurance producers, including excess or surplus lines brokers and agents, could receive multi-state licenses on a streamlined basis. It does not create any federal regulatory authority or agency.

Specifically, the legislation would require states to issue non-resident licenses to a NARAB member upon payment of a fee to NARAB.   A producer licensed in his or her home state may join NARAB.    NARAB could deny membership to a producer whose license is suspended, revoked, or based upon unfavorable information discovered on a criminal background check.  NARAB would establish membership standards based on integrity, personal qualifications, education, training and experience founded on “highest levels of state laws.”  NARAB could suspend membership for failure to meet membership criteria or due to state disciplinary actions, but NARAB would not have disciplinary authority.  States would retain authority for disciplinary action, market conduct reviews, consumer protections and the power to enforce their unfair trade practice laws. 

While NAPSLO has not yet endorsed HR 5611, the initial reaction is that there appears to be no conflict between the bill and the purpose of HR 1065 and S 929.  HR 5611 provides a uniform and consistent means for agents and brokers to obtain nonresident licenses, which appears to work well with the home state requirements in HR 1065 and S929 when placing a multi-state risk. 

Summary of Pending Federal Catastrophe Legislative Initiatives:

•    HR 3121 & S 2284 - Flood Insurance & Modernization Act.   The House version expands the Federal Flood Program to include wind coverage.  The bill was referred to the Senate Banking Committee in October and the Committee passed the bill removing expansion to wind coverage.  The House and Senate will have to resolve these differences before the end of the year when the Federal Flood Program expires.

•    HR 3355 & S 2310 - Homeowners Defense Act.  The legislation creates a voluntary consortium to pool catastrophe risk.  Under the proposal, the Federal Government would provide liquidity and loans to state insurance catastrophe pools and programs.

•    HR 91 - Homeowners Insurance Protection Act. The bill provides for the Federal Government to offer reinsurance to state programs.

•    HR 330 - Homeowners Insurance Availability Act. The bill provides that the Federal Government offer a reinsurance program through contracts purchased at regional auctions.

•    HR 164 - Policyholder Disaster Protection Act. No has been action taken. The bill amends the tax code to allow insurers to establish tax exempt catastrophe reserves.  

•    S 2327 - Homeowners’ Insurance Assistance Act.  S 2327 provides for tax credits for coastal residents whose property insurance premiums exceed a certain threshold.

It does not appear that passage of any of these bills is imminent. 

In the States

NAIC

The NAIC has recently undertaken both a producer licensing assessment and the creation of a producer licensing handbook.  The assessment is a preliminary step in determining the need for reform.  The NAIC is also considering a Medical Malpractice Data Reporting Model Law that includes reporting for surplus lines insurers. 

NAPSLO has repeatedly objected that surplus lines insurers should not be included in the model law. 

SLIMPACT

The group of volunteers working on the proposed surplus lines multi-state compliance compact has finalized its draft and submitted a copy to the NAIC.  The group recently met with the staff of the National Conference of State Legislators to request an endorsement of SLIMPACT.  Another meeting with the NCSL is set for April 24.

Alabama 

Alabama is considering amending Section 27-10-26 to allow the Commissioner to approve a surplus lines company that has not yet met the 5-year seasoning requirement. The commissioner can waive the requirements if the company meets requirements based upon management, financial solvency, ratings and minimum capital and surplus of at least $45 million.

HB 162 requires surplus lines brokers to transmit to the department information regarding motor vehicle insurance. 

Arizona

HB 2731 provides that no license is required simply because incidental portions of a surplus lines risk reside in Arizona. Non-resident surplus lines brokers not licensed in Arizona are now permitted to file taxes due on Arizona portions of the insured exposures by filing Form E159MS

California

      AB 2956 establishes a clarification of the criteria to determine when a broker. Brokers may be reclassified by the DOI as an agent and be forced to return some broker fees.  California issued a data call regarding the 2007 fires and surplus lines insurers were included. 

HB1699 reduces the licensing fee for surplus line producers.

Florida

HB 1001 would allow admitted insurers to issue nonassesable policies to nonresidential commercial property policyholders.

 FL 690-167-004 requires surplus lines brokers to maintain preinspection forms for private passenger auto forms. 

Hawaii

Hawaii adopted a resolution supporting SLIMPACT.  Hawaii also introduced legislation to form a Medical Malpractice Captive, which, if created, will apparently compete with surplus lines insurers. 

Kentucky 

Kentucky proposed the creation of the Kentucky Physician’s Mutual Insurance Authority. This apparently will not prohibit the state-run facility from competing with surplus lines insurers. 

Louisiana

HB 225 exempts surplus lines from rate and form regulation, except for claims handling and unfair trade practices.

Maryland 

HB 272 proposes a prohibition on surplus lines sales of medical stop loss coverage.

Massachusetts

HB 1119 would ease eligibility for alien insurers.

Minnesota

Legislation to form a new stamping office is being actively considered. 

Mississippi

HB1234 proposes a change in the stamping office law to allow the commissioner to contract with a third party to provide stamping office services. The reason for the bill is to allow the stamping office to operate under a contract with the Commissioner rather than the current legal structure. 

New Hampshire

HB1279 provides that only those laws that specifically mention surplus lines insurance shall be deemed applicable to surplus lines insurance.
New Jersey

The proposed repeal of the state surplus lines guaranty fund looks like it will not pass. 

New York

A proposal is pending to increase in minimum company surplus requirement to $45 million. New York is also considering an expansion of its export list.

Oklahoma

Proposed rule 365:25-7-80 requires surplus lines insurer data for reconciliation with broker filings.  NAPSLO has objected and explained why the two distinct data sets are not reconcilable. 

Texas

The Comptroller is considering legislation requiring consistent treatment of surplus lines insurance for multi-state risks.  Current law provides that a surplus lines placement transacted outside of Texas with incidental Texas exposures is considered to be independently procured insurance.

Virginia

HB298, which abolishes diligent search requirements, has passed. Although the short term result is that it is easier to transact surplus lines business, some in the industry are concerned about adverse long-term consequences. 

Washington

Washington is considering rules to amend the testing requirements for brokers, adding a requirement that brokers have a property-casualty license as a precondition for applying for a surplus lines license, eliminating the experience requirement as a precondition for applying for a surplus lines broker’s license and repealing the limited surplus lines broker license category.