February 2009 Full Newsletter
President's Message
2009 Starts With Electronic Newsletter
Members will notice a number of changes in NAPSLO's communications in 2009 as we move toward using additional electronic methods in an effort to provide more timely information and inform a larger audience about our activities and accomplishments.
One of the major changes is the adoption of an electronic format for the NAPSLO Newsletter. The newsletter will be published on a monthly basis, be sent to additional employees at NAPSLO firms, and be posted on the website for other interested parties to read.
NAPSLO will continue to send out E-News notices to highlight timely important events and also post items of relevance on our blog. I urge you to check the NAPSLO blog frequently for updates about NAPSLO and the industry.
The new look for our electronic newsletter is only part of the changes members will see this year. We are also working on redesigning the NAPSLO website and it should be completed soon. The revised website will offer a new look and additional features, such as an expanded video center to showcase Association videos and program segments from our meetings.
In today’s electronic world, members want additional online enhancements and as we work to meet those expectations NAPSLO is continually looking for ways to offer new features. Please take the opportunity to stay current on all of NAPSLO’s activities by viewing our electronic newsletter and visit our redesigned website
John Wood
NAPSLO President
Mid-Year Registration Expected to top 500
More than 500 people are expected to attend the 2009 NAPSLO Mid-Year Educational Workshop, February 26 - March 1 at the Renaissance Esmeralda Resort in Indian Wells, Calif. More details are available at the Mid-Year section of NAPSLO’s website.
The Workshop programs scheduled include a review of the current legislative and political landscape facing the industry and a program on cancer research on Friday, February 27.
Three sessions are scheduled for Saturday: Stop Budgeting and Start Running Your Business, Conquering the Legal World of Human Resources and Technology-Insights and Tips for Productivity. The Saturday programs will be offered in smaller settings and will be repeated so attendees can select among the programs to see what piques their interests. On Saturday night, there will be a wine and cheese tasting reception to conclude the Workshop.
The Derek Hughes/NAPSLO Educational Foundation Golf Invitational will be held Friday at 12:30 p.m.
The Renaissance Esmeralda Resort is located at the base of the majestic Santa Rosa Mountains in the exclusive community of Indian Wells. The Renaissance Esmeralda Resort & Spa is viewed as the desert’s finest oasis, offering unparalleled service and all the amenities of a world-class resort.
Reps. Moore, Garrett Applauded for Taking Lead on Introducing Surplus Lines Bill in House
NAPSLO applauded Rep. Dennis Moore (D-Kan.) and Rep. Scott Garrett (R-NJ) for announcing that they would introduce the Non-Admitted and Reinsurance Reform Act of 2009 in the U.S. House of Representatives and indicated they hoped the Senate would follow suit.
"We believe that the bill would make the surplus lines marketplace more efficient by facilitating the payment of surplus lines premium taxes and eliminating unnecessary duplicative compliance requirements on surplus lines multi-state risks," said NAPSLO President John Wood. "NAPSLO is pleased to see Rep. Moore and Rep. Garrett take the lead to have the bill introduced in the House of Representative and we are hopeful the bill will soon be introduced in the Senate."
Rep. Moore and Rep. Garrett are members of the House Committee on Financial Services.
The Non-Admitted and Reinsurance Reform Act is, in part, aimed at making access to the surplus lines market more efficient for consumers and the brokers and agents who assist them. In addition the bill could help standardize state regulations facing the industry.
"We believe that once this legislation is enacted it will help provide needed uniformity and consistency in insurance regulation at the state level," said NAPSLO Executive Director Richard Bouhan. "The problems with financial regulation uncovered last fall were not at the state level and this bill will only improve state regulation of insurance."
The bill would establish national standards for how states regulate the surplus lines market and reinsurance and would create a uniform system of surplus lines premium tax allocation and remittance, one-state compliance on multi-state surplus lines risks, and direct access to the surplus lines market for sophisticated commercial purchasers. These are concepts long endorsed by NAPSLO and promoted with members of Congress during meetings over the past few years.
The House passed similar versions of the bill in the last two sessions of Congress and the Senate took up a similar bill in 2007 but no action was taken in the Senate prior to the end of the 110th Congress, requiring that the bill be reintroduced in the 111th Congress in order to be considered.
"We have been meeting with members of the House and Senate and hope the bill will be introduced in the Senate and that both houses will pass the bill," said NAPSLO's Washington D.C. representative Maria Berthoud of B&D Consulting.
NAPSLO Renews Contract with B&D Consulting
NAPSLO recently renewed its legislative lobbying agreement with B&D Consulting. That organization will continue to represent NAPSLO in Washington, D.C. for the 111th Congress which ends in December 2010. Maria Berthoud, a partner with B&D Consulting, will continue to lead the B&D Consulting team representing NAPSLO.
Since 2005 B&D Consulting has helped raise the profile of NAPSLO and the surplus lines/wholesale insurance distribution system among members of Congress.
"With the assistance of the NAPSLO Legislative Committee and the extraordinary work of its chairs, the important role our market plays in providing insurance coverage to consumers with difficult to insure risks has been heard throughout the halls of our nation's Capitol and particularly in offices of the House and Senate leadership," said President John Wood.
"In the last Congress, NAPSLO was very close to passing reform legislation which would have simplified payment of premium taxes to the states and eased our compliance burdens on multi-state risk placements. We were stymied, at the last minute, in this effort by the “tsunami” of legislation arising from the credit crisis and economic meltdown our nation is facing."
While enacting surplus lines reform legislation will be NAPSLO’s highest legislative priority in the 111th Congress, our industry may face the biggest legislative challenge in its history. The current national financial crisis has focused Congressional attention on restructuring the regulation of the financial services industry which will include the regulation of the property / casualty insurance business. The state-based system of property / casualty insurance regulation could be considerably altered, if not eliminated, by Congressional action in favor of federal
oversight of all insurance transactions. As a result, a wave of Congressional action may be aimed at creating a new federal regulatory framework for financial services.
Building upon the recognition and presence we secured from our previous efforts in Washington, and using our relationship with B&D Consulting, NAPSLO is in a position to advance our message and views forcefully on all insurance matters that will come before the next Congress, Mr. Wood said.
First Executive Leadership School Takes Place
The first NAPSLO Executive Leadership School, at The Darden School of Business at the University of Virginia, featured programs taught by the top professors at the business school.
The school took place February 8-11 and was designed for senior-level members with 15 years or more of industry experience who wish to broaden their perspectives on important social, political, and economic issues influencing the insurance industry.
Participants enhanced their leadership skills and learned to become more able to effectively manage change at the personal, team, and organizational levels, and returned to their organizations with the tools and mindsets to think and act more strategically.
Instructors for this program were selected from the Darden faculty to provide a framework for future success in strategically managing, developing and leading organizations.
ATTENDEES
Philip Ballinger- S/L Stamping Office of Texas
Jim Bishop - RPS Colorado Springs (HCI)
Dick Bouhan - NAPSLO
Ira Calderon - CRC Jericho
Maya Cruz - All Risk/CESI, LLC
Shannon Dahlke - McClelland & Hine, Inc.
Brian Evans - Swiss Re
Doug Grant - Colony Insurance Company
John Grimaldi - Navigators Management Co.
Carl Heckman - Endurance
Marshall Kath - Colemont Brokerage Group Inc.
Shawn Makowski - Benchmark Management Group
Matt Pollak - Colony Insurance Company
Pam Quilici - Crouse & Assoc. Ins. Brkrs.
Mark Richards - Argonaut Specialty
Rob Roberts - Casualty & Surety, Inc.
Kevin Tromer - MacNeill Group, Inc.
Angela Urrutia - S.I.U., LLC
Andrew Whittington - RSUI Group, Inc.
John Wood - Specialty Risk Assoc., Inc.
FACULTY
Alan Beckenstein - Professor of Business Administration at the Darden School. He holds a Ph.D. in Economics from the University of Michigan. He has taught at the Darden School for 34 years in the areas of political economy, global competition, public policy, environmental management, and quantitative analysis.
Alec Horniman - Professor of Business Administration and Senior Fellow, Olsson Center for Applied Ethics, The Darden School. Mr. Horniman is a consultant to industry in the area of organizational behavior.
Sankaran Venkataraman (Venkat) - the MasterCard Professor of Business Administration at the Darden Graduate School of Business Administration. He is a member of the Strategy, Entrepreneurship and Ethics area at Darden and teaches MBA and executive level courses in strategy, entrepreneurship, and ethics.
Legislative Report
Surplus Lines State Issues
By Steve Stephan, JD, CPCU, ASLI
Director of Government Relations
A number of issues involving surplus lines are under discussion at the state level and also by the National Association of Insurance Commissioners.
NAIC
Commissioner James Donelon (La.), Chairman of the NAIC Surplus Lines Task Force, called for a teleconference of the Task Force in November to discuss the formation of a working group of regulators to study the feasibility of establishing a national clearinghouse for the allocation of multi-state surplus lines premium taxes. During the call, the feasibility of the clearinghouse was called into question (at least without legislation to create a uniform tax allocation system). As a result the agenda of the working group was enlarged to include studying an
interstate compact and other ideas for solving the multi-state surplus lines tax problems. The working group will be led by Cindy Donovan of Indiana, although there was some discussion about appointing a co-chair.
NAPSLO met with Ms. Donovan on Dec. 6th at the NAIC meetings in Grapevine, Tex. One of her initial thoughts was to investigate uniform electronic tax reporting, using uniform data elements in a uniform reporting form, based on a modification of preexisting reporting software (Sircon) for those states where it would be feasible to do so. The working group had its initial call Jan. 28.
NAPSLO spoke at the NAIC’s NARAB working group meeting Dec. 7 regarding the practice of requiring a non-resident P&C license as a precondition for the issuance of a non-resident surplus lines producer’s license. This practice could be construed to violate Graham-Leach-Bliley requirements for non-resident reciprocal licensing. NAPSLO submitted additional comments and the discussion with the NARAB working group is ongoing.
NAPSLO also spoke at the NAIC’s Producer Licensing Working Group Dec. 6 regarding the application of the multi-state risk exemption in the producer licensing model act. The exemption provides that a single license from the insured’s home state is all that is required to write a multi-state risk. The working group had previously indicated the exemption applied to surplus lines producers as well as producers on the admitted side. The working group recently changed their position so the exemption applies “at a minimum to admitted business” thus leaving the states the
option of requiring a surplus lines broker’s license from every state where any portion of the risk resides. NAPSLO objected that there appeared to be no legitimate policy reason for requiring multiple licenses to write a single policy with multi-state exposures on the surplus lines side, but a single license is all that is required on the admitted side. The surplus lines brokers do collect a multi-state tax, but there are many other more important duties performed by all producers, such as advising the client, binding the risk, collecting the premium, issuing policies etc. To single out
the surplus lines broker for more onerous regulatory treatment based upon a fear that the surplus lines tax (which is typically 3-5%) will be mishandled, is unjustified.
NCSL
NAPSLO spoke at the National Conference of State Legislators on Dec. 12, 2009 regarding the need for a legislative fix for the surplus lines multi-state tax problem. The NCSL previously appointed a working group to study the issue. The legislators present seemed receptive to the idea that a fix was needed, but they could also see potential problems with trying to implement a 50-state solution.
STATES TAXING GROSS SURPLUS LINES PREMIUM
NAPSLO has prepared a paper identifying the states that continue to have statutes on the books taxing the gross premium as opposed to an allocated share. The working groups at the NAIC and the National Conference of State Legislators are interested in this information because they are attempting to formulate a solution to the multi-state tax problems. Many of the states identified, in practice, tax only an allocated share of the premium. The states have been surveyed a couple of times in recent years and with a couple of exceptions, verbally
indicated they tax only an allocated share. NAPSLO believes the states should adopt allocation statutes so the laws on the books are consistent with the practice applied by the state tax collectors. Unfortunately, since many states may be facing budget shortfalls, this spring may not be the best time to be discussing revenue issues. If we identify states where it is feasible to seek such a reform in this environment of declining state revenues, we will do so.
SURPLUS LINES LAW GROUP
The surplus lines law group will meet March 26-27 in San Francisco. The law group is an informal meeting of surplus lines attorneys, compliance professionals and stamping office representatives who meet to discuss changes in the surplus lines laws and other pending surplus lines legal issues. For more information contact Steve Stephan at steve@napslo.org
NAPSLO Mid-Year Educational Workshop
A "Politics/Legislation" panel is slated for Friday, February 27 at the Mid-Year Workshop and will include a video interview from Rep. Dennis Moore, (D-Kan.), a presentation from NAPSLO lobbyist Maria Berthoud regarding plans for the upcoming congressional session and a presentation from Steve Stephan, NAPSLO Director of Government Relations, regarding state issues. A short review of the NAPSLO PAC activities by NAPSLO Executive Director Richard Bouhan is also expected.
ALASKA
NAPSLO objected to the following regulation adopted by the Alaska Insurance Department:
“An eligible surplus lines insurer shall include in each policy, binder and cover note an Alaska surplus lines policyholder notice regarding non-renewal and premium increase, in a format approved by the director.”
NAPSLO is opposed to the department of insurance approving any form issued by a surplus lines company because it violates one of the guiding principles of surplus lines insurance – freedom from form regulation. The Department politely responded and indicated this was the mechanism for requiring companies to either use the published wording approved by the department or file their own version.
CALIFORNIA
The fire surcharge assessment language that will be released shortly as part of Governor Schwarzenegger’s 2009-10 budget proposals regarding the Emergency Response Initiative is available to download. Similar to last year’s initiative, the administration will be looking for this proposal to be enacted this fiscal year.
Specifically, it is up to Surplus Line Brokers, not the non-admitted carrier, to collect the surcharge on non-admitted placements. For non-admitted policies, the surcharge is applicable to “the property portion of any homeowner’s policy, all risk insurance policy, or named peril insurance policy that specifically includes fire insurance.” On multi-state risks, the surcharge is to be pro-rated based on the percentage of the property risk located in California. Funds are to be paid by the surplus lines broker to the surplus lines
association (SLA) and by the SLA to the state. Risks with combined property & casualty coverage are to attribute 50% to the property coverage.
FLORIDA
An informal industry “working group” continues to work toward a legislative solution for the problems caused by the Essex v. Zota case. The Zota case ruled that a section of Chapter 627 of the Florida Insurance Code applied to surplus lines policies, notwithstanding the fact that Chapter 627 contained a provision that specifically stated “this chapter does not apply to surplus lines insurance.” Despite this plain language, the Florida Supreme Court concluded the language was a “scrivener’s error” (legal
clerical error). There is some disagreement over the interpretation of the Zota case, but some believe it could be read to mean that all of Chapter 627 applies to surplus lines insurance.
The Florida Office of Insurance Regulation (OIR) is expected to issue an order in the near future to partially clarify their interpretation of Zota Case. Specifically, the order is expected to state that surplus lines insurers are not required to file policy forms with the OIR. The order would only be a partial solution to the “Zota problem” and legislation would still be necessary to resolve which sections of Chapter 627 apply to surplus lines insurance.
The Florida Legislature convened a special session early in 2009 to address budget shortfalls, but many on the working group believe this was the wrong time to propose insurance legislation. By the time the regular session of the legislature convenes in March, the working group would like to have legislation drafted and ground work laid for introduction of the bill. Given the volatile legislative environment in Florida, few are willing to comment on the chance of success of any proposed legislation. However, a bill that would nullify the Florida Supreme Court Decision was recently introduced in the Florida House of Representatives.
The latest exchange between the OIR and the working group involved the OIR seeking to add language to the draft bill allowing the OIR to be reimbursed by surplus lines companies for examination and investigation expenses. The working group is formulating a response to the Department’s request.
KENTUCKY
A hearing was held Jan 29, 2009 regarding the risk location verification criteria and the process for vendors, and surplus lines brokers to apply for verification of a risk location system. A copy of the notice is attached.
LOUISIANA
In December the Louisiana Department of Insurance issued a notice of intent to adopt Regulation 93 - Named Storm and Hurricane Deductibles, which states that it "applies to approved unauthorized insurers, i.e. surplus lines." It does not apply to commercial property or properties with three or more units. If an insurer deviates from the requirements concerning deductibles for named storms, it must file a plan with the state to write new business in the state.
In late 2008 the Louisiana Insurance Department made a data call to some surplus lines insurers issuing homeowner’s policies in New Orleans. In connection with an audit of the DOI by the Louisiana Legislative Auditor, (LLA) the DOI objected that information in its possession was protected from disclosure by third party confidentiality agreements. The LLA has renewed its request for information and the DOI has begun notifying parties that confidential information provided to the DOI may be released to
the LLA without further notice. Attached is the text of a letter from the DOI to a surplus lines insurer on this matter.
MINNESOTA
The new Minnesota Surplus Lines Stamping Office opened effective January 1. If you are writing surplus lines business in Minnesota, please check the website www.mnsla.com for more information. Please note that all surplus lines policies effective Jan. 1, 2009 and after must be electronically submitted to the Minnesota stamping office prior to delivery to
the insured.
NEW YORK
NAPSLO objected to NY circular letter 26 which was circulated to the industry before it was issued. The circular letter pertains to a law that took effect on January 17, 2009 (180 days after it was signed by the Governor on July 21, 2008). The law applies to all liability policies (including renewals) issued or delivered in New York on or after the effective date of January 17, 2009, including, by its terms,
policies issued in the excess line market. The circular letter was to remind liability insurers of the necessity of promptly revising their property/casualty insurance policy forms to comply with the bill’s significant amendments.
Specifically, Insurance Law 3420 establishes minimum policy provisions and other requirements with respect to liability policies “issued or delivered” in New York.
According to the circular letter, the claim may not be denied if: 1) it had not been reasonably possible to give notice within the prescribed time, and notice is given as soon as reasonably possible, even if the insurer has been prejudiced; or 2) the insurer has not been prejudiced, even if the claim was not made as soon as reasonably possible.
NAPSLO objected that the law violates the freedom from form regulation necessary to insure distressed risks. If the risk is so distressed that it was declined by the admitted market, making the tail even longer is not in the best interest of the insured. NAPSLO suggested that excess lines be removed from the scope of the circular letter.
TEXAS
NAPSLO is following the developments surrounding SB 148, which is a bill that attempts to require surplus lines insurers to invest in low-income communities. The bill contains some drafting errors and other problems. NAPSLO is considering objecting to the bill, but we have also been advised that it is
unlikely to advance.
Surplus lines companies continue to protest the Texas Windstorm Assessment because it applies to surplus lines companies that are affiliated with admitted companies. It does not apply to a stand-alone surplus lines company. The obvious unfairness of the rule has generated complaints since it was adopted several years ago, however the state has yet to take action.
NAPSLO to offer CE Credit Courses Online, to be Demonstrated at Mid-Year Workshop
NAPSLO has teamed up with the Success Family of CE Companies to deliver a web-based continuing education program for NAPSLO members. This new feature provides the ability for NAPSLO members to obtain continuing education credits on-line. This program will be demonstrated at the upcoming NAPSLO Mid-Year Workshop.
Demonstration sessions are set for 11:00 a.m., 1:00 p.m. and 3:00 p.m. on Thursday, January 26 and at 8:00 a.m. on Friday, January 27. In addition, walk-up demonstrations will be available from 10:00 a.m. to 5:00 p.m. on Thursday and 11:00 a.m. to 2:00 p.m. on Friday.
Under the program, employees of NAPSLO member firms will be able to access the CE courses through the NAPSLO website and complete the process online. The cost is $34.95 (plus state fees) per person for unlimited courses for a year, or $14.95 for individual courses.
E&S/Retail Workgroup to be Focus of Keynote Address at Automation Conference March 14-17 in San Diego
The E&S/Retail Agent Workgroup will be the subject of the NAPSLO sponsored keynote address at the AAMGA Automation Workshop, March 14-17 at the Crowne Plaza Resort in San Diego. Registration is open to NAPSLO members. Other programs include information security, virtualization, Lloyd's Exposure Management, and the New Workplace Dynamic.
The "Bringing IT All Together" conference will also feature a panel with industry carriers discussing plans and directions related to automation, and an Industry Update Panel featuring leading solution providers reviewing updates on automation initiatives. In addition, a Vendor Trade Show will take place.
The conference is open to both AAMGA and NAPSLO members. NAPSLO is sponsoring the conference keynote program on the status of the E&S/Retail Working Group, which is working on electronic exchange, standards, consolidated forms and enhanced website functionality.
