Change Is Never Easy
...and will be incredibly beneficial going forward.
I’m a grab-the-bull-by-the-horns kind of guy. I don’t like to sit back and wait for things to happen, and I certainly don’t shy away from new ideas or opportunities, especially if they’re good ones. So it’s increasingly frustrating to watch a group like the National Association of Insurance Commissioners continue to spin their wheels when presented with yet another opportunity to be proactive on an issue so essential to the industry.
As you know, the Nonadmitted and Reinsurance Reform Act (NRRA) was enacted into law last July as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The NRRA reforms the regulation of surplus lines insurance by limiting regulatory authority over surplus lines transactions to the home state of the insured and by setting federal standards for the collection of surplus lines premium taxes, insurer eligibility and commercial purchaser exemptions. In what has been one of the most costly, time-consuming and fortitude-testing exercises brokers have struggled with over the years, the signing of the NRRA legislation last summer was something worth celebrating. It will provide great opportunities in the surplus lines marketplace for those who are ready to capitalize on them.
Since then, however, there has been no clear-cut direction on the next step individual states should take. Instead of establishing rules and regulations for the states to act in a uniform manner in the collection of surplus lines taxes and in regulation between the states, the NAIC adopted the Nonadmitted Insurance Multistate Agreement (NIMA)—a solution that does nothing to tackle the standardization of surplus lines regulation. The NAIC was practically handed an engraved invitation by Congress to pursue greater uniformity yet chose once again to take the easy way out by doing the minimum possible to effectuate the new law.
The other principal framework that states are using to comply with the NRRA is the Surplus Lines Insurance Multi-State Compliance Compact (Slimpact). Developed by the National Conference of Insurance Legislators (NCOIL), Slimpact is a more comprehensive approach, addressing tax collection, allocation issues, and other regulatory concerns, such as insurer eligibility, insured “home state” determinations, and commercial purchaser exemptions. The Council would much prefer that states adopt the Slimpact approach. But in these tight fiscal times, the political will just doesn’t seem to be there.
At this stage, some states have adopted NIMA, other states have adopted Slimpact, and still others have not taken any action. The problem is, when the law takes effect on July 21, surplus lines brokers will need to look to both the NRRA and the laws of the home state of the insured to determine what they need to do to comply with all applicable rules. And as long as this patchwork of laws is in place, confusion among regulators and licensees will continue to be alive and well.
Despite the lack of NAIC leadership on this issue, we feel that the implementation of the law will still make things markedly better than they are now. Granted, we’re all likely to hit some bumps in the road along the way, but ultimately we’ll be better off. We will continue to be vigilant about monitoring the states to ensure they implement the law the way it was intended. And it won’t be long before we see a vast improvement from the old method of placing multi-state surplus lines policies, which was built on a foundation of complexity and disorder.
Change is never easy. And grabbing any bull by the horns oftentimes results in a few cuts and bruises. But ushering out inconsistency and conflict in place of a single state regulatory system for surplus lines placements is of vital importance for our industry and will be incredibly beneficial for the market going forward.