In the course of the day, it’s not uncommon for us to have a couple of chuckles about the odd and sometimes downright crazy stuff we see and hear around the regulatory and political arena. It comes with the territory, and, frankly, it can bring life to a cold, rainy, gray Washington day.
There are times when we just shake our heads and wonder how something so simple could get so out of hand. Take surplus lines insurance, for example, and the struggles that we’ve all had trying to help make this critical line of business better for our customers and the industry. How did this become so difficult?
The goal of the Nonadmitted and Reinsurance Reform Act (NRRA) was to streamline the regulatory burden, to help insurers and brokers alike comply with state rules, and to provide much-needed insurance protections for consumers. It wasn’t rocket science.
State insurance commissioners and legislators were tasked to work together to conform state laws to the NRRA. The lead compliance option was of the “go it alone” variety—states would regulate and tax transactions taking place within their own borders without sharing anything with other states. For whatever reason, it was a hard sell for some. A sharing arrangement was added as an accommodation for those less enthusiastic states, and other agreements and approaches began sprouting up. So instead of having a simpler tax reporting and payment process, surplus lines brokers have lately been forced 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. Balderdash, anyone?
The smartest states, recognizing the importance of the business and the true simplicity of the situation, have committed to collecting taxes on risks based in their home state as the law requires.
(Cue subliminal message here: Simple does work.)
Other states, however, have so poorly misinterpreted the new law that they’re causing more marketplace confusion than before the bill was passed. Their approach to implementing the law has been uncoordinated and cumbersome, and we are increasingly concerned that this simple provision is leading to an unintended result that actually exacerbates existing compliance burdens and challenges.
It’s all too sad, really. Instead of putting customers first and finding the best way to protect risks, we continue to watch the tail wagging the dog. What happened to plain old common sense?
The reason we worked with Congress for eight years on this mess was because the laws and regulations surrounding surplus lines transactions were exactly what they continue to be—counterproductive, confusing and time consuming. It took time, patience and resources to coach the 535 members of Congress on these issues and to get them to understand and/or trust us enough to recognize that there was a problem and a practical solution on the table to fix it. They finally came through, but because not every state did its homework on time, the rules are more unclear than ever.
To make matters worse, brokers also have to worry about a not-so-well intentioned regulator coming in and auditing the transactions. Where will that lead us?
The good news here is that there is still an opportunity for state insurance regulators to dig out of this hole for the good of insurance consumers across the country. But the clock is ticking. The states ought to focus only on the risks based in their home state and stop confusing things with compacts, agreements or anything else. In the meantime, regulators should commit to giving us all a break as it relates to trying to comply with these rules since they change daily. No one can keep up, and it’s a poor exercise in futility.
Everyone ought to want to fix this issue since it’s such a serious one for insurance clients. If the regulators can focus on their job, we can focus on protecting the businesses we work with by ensuring they have the coverages they need to thrive in a difficult time. The solution is straightforward, uncomplicated, and above all else, it’s the law. The more complicated things get, the further away from engaging in productive business we all are. Rest assured, we are watching, waiting and tired of running in circles.