 |
 |
||
|
|
|||
Legislative Update - Federal Surplus lines regulatory reforms closer to approval By Richard Bouhan Executive Director
Improvements to the regulation of the surplus lines market came one step closer to reality, when the Senate Banking Committee recently included surplus lines reform language in the financial services reform legislation it recently adopted.
The surplus lines reform language was included in the Senate Banking Committee’s Financial Services Reform legislation, entitled Restoring American Financial Stability Act of 2010.
It is likely the Senate will pass financial services reform legislation this year and if the Senate and House reconcile their differences, the reforms that NAPSLO and others have pursued will become law.
When enacted, the surplus lines modernization provisions will make the payment of surplus lines taxes, particularly on multi-state risks, more efficient and less burdensome to the surplus lines broker and will benefit the insurance consumer who ultimately pays the price of the current dysfunctional and costly tax remittance system. In addition, multiple, duplicative and overlapping compliance requirements will be eliminated on surplus lines policies that insure risks across state lines. The legislation also allows many commercial buyers easier access to the surplus lines market where coverage for difficult and hard to insure risks can be found.
NAPSLO President Marshall Kath spoke on behalf of NAPSLO saying, “We are pleased to see the NRRA provisions included in the regulatory reform legislation on which Sen. Dodd and other Senate Banking Committee Members so diligently worked. The NRRA provisions will enable the surplus lines industry to operate more efficiently and effectively.”
Enactment will also benefit state insurance regulation as the bill creates standards for a more efficient system of state regulation for two important segments of the insurance industry, without expanding federal authority or creating a new federal agency.
The overhaul of the state insurance regulatory system through “national standards” is not new. National standards have been discussed for many years and were part of the State Modernization and Regulatory Transparency Act, or SMART Act, drafted in 2006. The SMART Act was comprehensive and used complex series of standards and processes to establish standards that encompassed all segments and aspects of state regulation. Unfortunately, the proposal was too broad and far-reaching to gather significant support. But the act did illustrate how “national standards” could be used to improve state based system of regulation. In 2006, the surplus lines and reinsurance provisions were introduced as the Nonadmitted and Reinsurance Reform Act, and are now part of the financial services reform legislation before the Senate.
Surplus lines and reinsurance are not the only segments of the industry where state regulation could be improved through national standards. A proposal to establish a clearinghouse for a quick and easy acquisition of non-resident insurance producer licenses in the various states, known as “The National Association of Registered Agents and Brokers Reform Act” (NARAB), has been introduced in the House. NAPSLO believes this targeted reform legislation would improve the licensing process and is consistent with other initiatives that propose reasonable national standards for state regulation.
State insurance regulation works well, but changes to improve its efficiency are needed. And those changes can be effected through national standards such as those about to be enacted by Congress for surplus lines and reinsurance.
State Legislative Update NAIC task force to look into SLIMPACT By Steven Stephan Director of Government Relations
Separately, the NAIC NARAB working group surveyed the states regarding the practice of requiring a non resident P&C broker’s license as a prerequisite to issuing a non resident surplus lines brokers license. The NAIC concluded that a non resident P&C license should only be required if the state required the surplus lines broker to conduct a diligent search. NAPSLO has argued that the state laws do not require a wholesaler to conduct the diligent search so wholesalers should not be required to obtain a non resident P&C license. At this point about half the states have responded to the survey and we are hopeful that the licensing burden will be lessened for surplus lines wholesalers.
Surplus Lines Law Group The surplus lines law group met April 16 in
Broker Fees Webinar NAPSLO presented a webinar on surplus lines broker fee rules in late February. NAPSLO is in the process of organizing the various state rules so they can be placed on the NAPSLO website for members.
The fire surcharge bill (SB 40) continues to gather steam. The bill is by its terms applicable to surplus lines. Insured’s would pay a surcharge on commercial property, residential property and multiperil property insurance.
In other bills, AB 1708 would increase the capital and surplus requirements for surplus lines insurers to $45 million.
HB 10-1227 corrected a language problem in the code that required medical practitioners to obtain errors and omissions coverage from authorized insurance companies. The bill clarifies that medical malpractice coverage can be obtained from approved non-admitted insurers.
The Office of Insurance Regulation has requested D&O data for 2009, along with other data from surplus lines insurers that was due by April 1, 2009. The request for the D&O data from surplus lines insurers was not specifically authorized by the Code and the legislative fix signed into law in 2009 regarding the Zota case provides that only those code sections that specifically mention surplus lines insurance shall be deemed to apply to surplus lines insurance. Since there was no code section authorizing collection of D&O data from surplus lines insurers, several surplus lines insurers objected that the request for D&O data contravened the statutory fix adopted after the Zota holding.
The
A commercial property deregulation bill is also pending (SB 2176). It specifically exempts numerous commercial lines from rate filings.
A bill (HB 2518) has been introduced that would increase the surplus lines tax from 4.68% to 5.85%.
HB 258 has been proposed to exempt surplus lines from form and rate filing. Forms and rates are not presently filed in
HF 2972 would change the definition of gross premium for surplus lines tax and clarify some of the broker fee provisions. There has been a lot of discussion with the Revenue Department about the possibility that the proposed definition (all charges, commission and fees received by the licensee) is so broad it would encompass fees unrelated to a surplus lines placement. An industry group proposed adding the words “directly related to a surplus lines placement” to the definition. The discussion is ongoing.
A group of industry volunteers met to discuss abolishing the NJ surplus lines guaranty fund. The state raided the fund for the second time last year. Surplus lines policies are surcharged to establish a fund in the event of an insolvency, so the surcharge is not being used for its intended purpose.
HB 2698 is a bill that would reduce the surplus lines tax to 3% from 5%. Last session the surplus line tax was increased from 3% to 5%
At the NAIC meetings the states representatives were asking about the creation of a surplus lines guaranty fund. NAPSLO sent a letter opposing the creating of another Surplus Lines guaranty fund.
ELANY has sought amendments to the code that would waive the declination process for the first and second renewals, would allow the surplus lines insurers to write med mal, would treat an admitted quote in excess of 25% for the non-admitted quote as a declination and requires no declination for a large commercial insured.
Regulation 114 appeared to require the surplus lines companies to appoint all surplus lines brokers with whom they conduct business as an agent for service of process. NAPSLO submitted comments arguing that such a vast number of agents for service of process is not necessary and increases the chance of suit papers being mishandled.
On another bill, RI 6-65-7.1 requires insurers to notify the contractor’s registration and licensing board if a policy is cancelled. It does not specifically mention surplus lines insurers, and is not even in the insurance code. At least one surplus lines insurer expressed the concern that it would be applied to surplus lines insurance.
HB 3759 and 3744 would authorize the commissioner of commerce and insurance to suspend or revoke eligibility of a surplus insurer if the commissioner finds that a surplus insurer is incompetent or not trustworthy and its operations are detrimental to policyholders. A draft amendment to the Senate version of the bill would have allowed the state to conduct a market conduct exam on surplus lines companies. NAPSLO submitted written comments in opposition to the draft amendment due to opposition of NAPSLO and other concerned insurers, the sponsor told the Department of Insurance that he did not plan to pursue the amendment. The bill is currently in committees in both the House and Senate.
TC 55.601 became effective in March and it requires insurers to check a data base of delinquent child support payments before paying an insurance claim. It specifically mentions surplus lines insurance.
NAPSLO and other interested parties attended a meeting on March 24 convened by the state to discuss the outdated code and the unusual diligent search requirements. There was a report of some complaints from a medical malpractice carrier that surplus lines companies had been competing with them. The state’s goal was to find a consensus on changes to the surplus lines code to be proposed for the 2011 legislature. A bill to automate the filing of a declaration in place of the paper affidavits was pending but was not expected to advance this year. The state is also continuing to propose bills to achieve licensing reciprocity, such as HB 2512.
|
|
|
|
