Federal Legislative Update

NAPSLO played large role in Senate passage of surplus lines reform language

By Richard M. Bouhan

NAPSLO Executive Director

(Following passage of the historic bill, NAPSLO sent the following to its members to review the history of the legislation.)

Recently the Senate passed sweeping financial services reform legislation which includes significant changes to surplus lines regulation that NAPSLO first requested Congress enact nearly seven years ago. While the Senate bill still has to be reconciled with the House's version of the legislation, we are confident that the surplus lines language will be retained when the bill is finalized and sent to the president for his signature, which is expected. This should occur in the next few weeks.

NAPSLO began this journey in late 2003 when it contacted the staff of the House Financial Services Committee about discussing the inclusion of surplus lines reforms in the legislation the committee was drafting to overhaul the state insurance regulatory process.

In early 2004, four representatives of NAPSLO met with members and staff of the committee and offered proposals that would use federal law to make the state surplus lines premium tax payment system rational and efficient and simplify the compliance process on multi-state surplus lines risks. NAPSLO also suggested that any federal surplus lines legislation contain an "exempt commercial purchaser" provision that would allow, on a national basis, large and sophisticated buyers of insurance, through their brokers, access to the surplus lines market without a "diligent search."

NAPSLO corresponded with the committee staff over the next few months and was delighted to find that its concerns and ideas regarding surplus lines regulatory modernization were addressed when a comprehensive approach to establishing state standards for insurance regulation was put forth by the committee staff in what was called the State Modernization and Regulatory Transparency (SMART) Act. Unfortunately, due to the scope of the SMART Act, which addressed all aspects of insurance regulation, and the opposition of those who did not want to strengthen state regulation so as to more easily advance a federal approach, the proposal did not move.

In mid-2006, NAPSLO was contacted by the committee and told that the surplus lines provisions along with the reinsurance sections of the SMART Act would be introduced together as a separate piece of legislation to be titled: The Nonadmitted and Reinsurance Reform Act (NRRA). It was believed that such a bill had a chance of being enacted and becoming the vanguard for an "incremental" approach to establishing federal standards for state insurance regulation. In June 2006, a hearing was held before the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises on the Nonadmitted and Reinsurance Reform Act (NRRA). At the hearing, I represented NAPSLO and testified in full support of the surplus lines provisions of the bill. In September 2006, the House passed the NRRA by a vote of 417 to 0.

While the NRRA, as passed by the House, tracked the surplus lines and reinsurance provisions of the SMART Act, the House version of the bill had one very important addition. That was the inclusion of an interstate compact, or similar arrangement, to facilitate the collection and allocation of the surplus line premium tax among the states on a nationwide uniform basis. As far back as 2002, NAPSLO, in a white paper entitled:  "The Future is Now," proposed an interstate compact as a key part of the solution to the collection and allocation problems associated with the remittance / payment of surplus lines premium taxes.  NAPSLO was gratified to find its "interstate compact" approach incorporated by Congress into the NRRA.

In order to gain more effective representation in Washington, D.C., NAPSLO in the spring of 2005 engaged B & D Consulting to represent the Association in Congress and with executive branch agencies. Maria Berthoud, a Vice President of B & D Consulting, assisted by Libby Baney and a number of other B & D staff, began full time advocacy for NAPSLO in Washington at that time. NAPSLO's invitation to present its views on the NRRA at the House hearing validated the Association's decision to create a full time Washington, D.C. presence.

After the hearing, one of the first actions B & D Consulting initiated was to create a Nonadmitted Reinsurance and Reform Act advocacy group or "NRRA Coalition" with NAPSLO as the chair or lead organization for the group. It was through this coalition that the various Associations, companies and firms that supported the passage of the NRRA coordinated their lobbying visits, traded "intelligence" on the bill's progress and presented a united front to Congress. The NRRA Coalition was a major factor in successfully steering the NRRA through Congress.

The House eventually passed the NRRA four times. And each time it was introduced, the bill gained more co-sponsors.   In addition to Representative Dennis Moore (D-KS) who, along with Congresswoman Ginny Brown-Waite (R-FL) and former Congressman Richard Baker (R-LA), originally championed the legislation in the House, NAPSLO, through some hard work, was successful in securing an influential Republican Congressman, Scott Garrett (R-NJ), as a lead sponsor of the legislation, this year, in the House. In addition, House Financial Services Committee Chairman, Barney Frank (D-MA) who is not known for his pro-insurance or business stance, signed on, this year, as a co-sponsor of the NRRA. NAPSLO was able to garner solid bipartisan support for the NRRA in the House.

While NAPSLO continued its work in the House, it also focused a great deal of effort on the Senate over the last three years. This latter effort paid dividends, last year, when Senator Evan Bayh (D-IN) along with former Senator Mel Martinez (R-FL) agreed to co-sponsor the NRRA. In July 2008, NAPSLO was one of eight organizations asked to testify before the Senate Banking Committee on insurance regulatory reform. In that hearing I was able to highlight the NRRA as a necessary piece of insurance reform legislation. (Highlights of NAPSLO's testimony are in the Video section of our website.)

NAPSLO also secured co-sponsorship for the bill from Senator Mike Crapo (R-ID). But, most importantly, NAPSLO was able to obtain the interest of Banking Committee Chair Christopher Dodd (D-CT) in the legislation, and as the omnibus financial services reform measure began to take shape in the Banking Committee earlier this year, Sen. Dodd had the NRRA language included in the bill. And now with the bill and the NRRA language passed by the Senate, we are on the cusp of having the NRRA become law.

We owe a great deal of thanks to the above mentioned Senators and Representatives for their support and help in moving the NRRA through the congressional labyrinth. We must also thank B & D Consulting, particularly Maria Berthoud and Libby Baney, for their tireless effort on our behalf.  NAPSLO staff also played a key role by providing information and analysis used to promote the NRRA. We thank them for all of their hard work.

A strong debt of gratitude is owed to the NAPSLO Legislative Committee members, Board members and other members who took time to participate in NAPSLO's Legislative Day activity over the years and helped spread NAPSLO's message and urge passage of this bill to the Members of Congress. A special thanks goes to the co-chairs (past and present) of the NAPSLO Legislative Committee who have overseen and guided this effort as well as offering practical insights into the impact this legislation would have on our business.

But, most of all, we must thank the NAPSLO members who provided their support for the Association's efforts in successfully securing this legislation and to those many NAPSLO members who responded to our call for "grass roots" lobbying help by energetically contacting their representatives in both the Senate and the House in support of the NRRA. These actions made a difference.

While we haven't yet crossed the "finish line," it is well within sight and we can now begin to sense victory in this long and hard fought legislative effort.