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By Steve Stephan, JD, CPCU, ASLI Director of Government Relations
Surplus Lines issues covered at recent NAIC meeting
Surplus lines licensing, an update on the Non-Admitted and Reinsurance Reform Act (NRRA), an update on the interstate compact proposal (SLIMPACT), and an update from the NAIC’s surplus lines Multi-state Tax Working Group were subjects of the NAIC Surplus Lines Task Force meeting on June 15 in Minneapolis during the NAIC’s summer meeting.
During the meeting, the subject of whether the commercial multi-state licensing exemption in the producer licensing model act (PLMA) applies to surplus lines brokers was raised by NAPSLO. Approximately half of the states do not believe that the commercial multi-state licensing exemption applies to surplus lines brokers. Instead, they believe that the surplus lines broker should be required to have a license from every state where any portion of the risk exposure resides.
The exemption in the PLMA provides that only one state license is required to place a risk with exposures in more than one state. In NAPSLO’s view, this was an issue discussed and decided when the PLMA was originally adopted. There was nothing in the PLMA language to indicate that the exemption was not applicable to surplus lines brokers. The NAIC decided to research the issue and NAPSLO will submit additional comments.
The NAIC Surplus Lines Task Force also decided to allow a survey of the task force members regarding their views on the surplus lines multi-state compliance compact (SLIMPACT) proposed by a group of interested parties. The SLIMPACT draft was completed several months ago and the drafting group is trying to determine if there are changes that would make it more palatable to the Task Force.
The Multi-State Tax Working Group (MSTWG) submitted a survey to state regulators to gather information to study the feasibility of a uniform surplus lines tax reporting form. At this point 31 states have responded and the MSTWG is following up with the states.
The NAIC NARAB Working Group also met on June 15 and issued a report that concludes, among other things, that a surplus lines wholesaler should not be required to obtain underlying P&C licenses from a state unless the wholesaler is involved with the diligent search of the admitted markets. This has been an issue raised by NAPSLO. The NARAB working group also issued a framework for implementation of the changes, including the surplus lines licenses. This should help streamline a process that has been very burdensome for surplus lines wholesale brokers.
The Reinsurance Task Force reports that the NAIC has retained a law firm to research a number of constitutional issues raised in connection with the NAIC's federal reinsurance proposal. The issues concern the NAIC's proposal to allow the NAIC authority under federal law when there is nobody within the NAIC that has been appointed by a federal authority. There as been speculation that the NAIC will seek to substitute their reinsurance proposal in place of the reinsurance section of the Nonadmitted and Reinsurance Reform Act.
Arkansas has passed legislation that would make it clear that surplus lines carriers are not required to file policy forms (23-79-109). It is one of the few states to do so since the surplus lines codes were originally intended to contain all the laws applicable to surplus lines insurance and the surplus lines codes do not require forms or rates to be filed.
California issued Bulletin 1181 on June 2 and the bulletin states that surplus lines business entities have until July 1, 2009 to provide two-hour training to employees.
California also has a proposal to add a surcharge on property insurance (including surplus lines) to fund a portion of firefighting expenses. At one point, it appeared likely to pass, but the prospects for passage are unclear today. The
The legislative fix for the
Effective July 1, 2009, the Montana Commissioner of Securities and Insurance announced it will review and process surplus lines insurance submissions, determine applicable stamping fees owed, and send surplus lines agents tax and fee statements. All of these functions were previously performed by the Montana Surplus Lines Agents Association (MSLAA).
New Jersey New Jersey has proposed increasing the surplus lines tax from 3% to 5%. The state is facing budget shortfalls and increasing the surplus lines tax was one of the many measures being proposed. NAPSLO objected to the tax increase on grounds that it was larger than the increase proposed for admitted business.
New York New York has proposed revisions to the excess lines placement governing standards, otherwise known as an “export list.” The additional coverages include some excess umbrella (over $10,000,000), commercial property (excess of $50,000,000), contract frustration, employed lawyers, and numerous lines impacting care providers. This expansion was the culmination of nearly two years of work by ELANY and other interested parties.
Rhode Island Rhode Island has been dealing with the question of whether the cancellation and non-renewal laws apply to a surplus lines company. At this point it appears industry and regulators alike may be interested in reinstating the exemption of surplus lines insurers from the cancellation and non-renewal provisions in the code.
On May 29, NAPSLO submitted a letter, in conjunction with the SILA surplus lines steering committee asking the Washington, D.C. Insurance Department to support legislation that would:
Federal Courts The U.S. Supreme Court has accepted a case that interprets the term “principal place of business.” (Hertz Corporation v. Friend) This is a term used in the Non-Admitted and Reinsurance Reform Act to define the home state of the insured. It would likely be rare for there to be more than one possible principal place of business of an insured and it would be even rarer for the matter to be in question following a review of the voluminous federal case law on the issue. Nevertheless, this case should further clarify the definition of “principal place of business.”
Steve Stephan Nominated to NCOIL's IEC Board
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