NAPSLO e-News - July 25, 2012
The purpose of this report is to provide a special update to NAPSLO members as we reach the two-year anniversary of the Nonadmitted and Reinsurance Reform Act (NRRA). In enacting the NRRA, Congress took a great step toward modernizing surplus lines regulation and taxation, making regulation more consistent and efficient, with tremendous benefits for the surplus lines industry. In the two years since the NRRA’s passage, the NAPSLO Board, Legislative Committee and staff have been hard at work, with the help of stamping offices and state associations, advocating for the law’s proper implementation to state legislatures, insurance commissioners and insurance department staff, the NAIC and Members of Congress in an effort to fully realize the goals of the federal law.
Our #1 Priority – NRRA Implementation
“Home state exclusive authority has been a significant benefit for AmWINS due to the large percentage of multi-state placements written by our various offices. Compliance with only one state’s statutes with regards to diligent effort, export list, tax forms, insurer eligibility and policy document disclosure has allowed us to further streamline our processes and simplified our communication of these requirements with our retailer clients.” – Kathy McVaney, Director of Regulatory Compliance, AmWINS Group Inc.
“Our compliance department’s “Four C’s” goal (is it Current? Correct? Consistent? Compliant?) is a constantly evolving target. The basic NRRA tenants of home state and its related definitions have streamlined the surplus lines process for many of our accounts, and its effects are felt across multiple departments. The larger, more complicated accounts are benefitting most from a simpler and thus quicker approach. With a majority of the states now taxing and retaining 100% of the tax as the home state our internal workflows are far less complicated and time consuming. From a big-picture perspective, our “Four C’s” goal has been made easier to attain.” – Jenny Lind, Compliance Coordinator, Westrope
• Tax Sharing
While NAPSLO’s recent legislative updates and communications have focused on the details of tax sharing, the status of NIMA and the effective date and reporting requirements of the NIMA Surplus Lines Clearinghouse, it is important to step back and review the national landscape and tremendous strides toward home state taxation. Today, nearly 75% of nationwide premium in 35 states will be taxed by states retaining 100% of the tax as the home state, representing states that have not adopted a compact or agreement for tax sharing purposes. States who entered in to the compact known as SLIMPACT, which is not yet operational, are currently collecting 100% of the tax increasing the home state approach to 44 states and more than 80% of nationwide premium. Those states implementing NIMA, which became effective July 1, 2012, represent 17% of nationwide premium. Since January 1st, six states (Alaska, Connecticut, Hawaii, Mississippi, Nebraska and Nevada) have withdrawn from NIMA leaving Florida, Louisiana, Puerto Rico, South Dakota, Utah and Wyoming as the only jurisdictions currently working to share surplus lines taxes.
Just two short years ago, pre-NRRA, a broker was apportioning premium, calculating taxes at multiple tax rates and making separate tax filings and payments in every jurisdiction involved in a multi-state insurance risk. It was a long time coming, but in retrospect, the home state reform has been quite successful in dramatically improving the process and reducing the cost of surplus lines tax compliance within the state based regulatory system. NAPSLO is pleased with this progress at the two-year mark and will continue its work toward 100% uniformity with home state taxation.
• Insurer Eligibility
In early 2012, NAPSLO increased its focus on the states’ implementation of the NRRA’s two-prong criteria for insurer eligibility as required by the NRRA. Working with many of our fellow insurance trade associations, NAPSLO met with regulatory officials and submitted a letter to the NAIC regarding the need for the uniform implementation of the NRRA’s insurer eligibility standards nationwide. NAPSLO continues to urge the NAIC and its Surplus Lines Task Force to consider the concerns raised in our April coalition letter, and we have an opportunity to get started during the NAIC Summer National Meeting next month.
• Uniformity in Home State Regulation
• Producer Database
• Two States To Go
Other Legislative Updates
• Zero Reporting Requirements
In June, the NAPSLO Board of Directors approved a policy position that zero report requirements should be eliminated.
• Certificate of Insurance Requirements
In June, the NAPSLO Board of Directors approved a policy position that opposes provisions in laws or regulations that require surplus lines brokers or surplus lines companies to issue standard or state approved certificate of insurance forms.
• NARAB II
A revised NARAB would operate as follows:
The legislation includes changes worked out between legislators, regulators and the industry, and it has been endorsed by the American Association of Managing General Agents, American Bankers Insurance Association, American Insurance Association, Council of Insurance Agents and Brokers, Independent Insurance Agents and Brokers of America, Insured Retirement Institute, National Association of Insurance and Financial Advisors, National Association of Mutual Insurance Companies, NAPSLO and the Property Casualty Insurers Association of America. The NAIC has endorsed the latest version of the legislation.
• Federal Insurance Office
NAPSLO’s continued legislative efforts will be driven by our goal to provide our industry the regulatory simplicity and uniformity it needs to reduce the unnecessary and duplicative costs of regulatory compliance best serve consumers. Check out the “NRRA Resources” link on the NAPSLO website for access to background information on the NRRA, NAPSLO guiding principles and position papers, NRRA compliance resources, and state by state summaries of approved/pending legislation, bulletins and guidance. Earlier legislative updates provided to NAPSLO members can also be found below.
I hope this report is helpful to you, and I encourage you to contact the NAPSLO office at (816) 741-3910 with questions or suggestions for how NAPSLO can further assist you and the membership.
Brady R. Kelley
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