NAPSLO Legislative Report: Surplus Lines Issues Covered at NAIC Meeting
NAPSLO Legislative Report: Surplus Lines Issues Covered at NAIC Meeting
With the end of the year 2000 state legislative sessions and the U.S. Congress winding down its post-election lame duck session, legislative activity affecting the insurance industry has virtually ground to a halt. However, the regulatory efforts that can impact insurers and producers continue in the states and the NAIC moves forward with a number of its initiatives.
NAIC Winter National Meeting
At the NAIC Winter National Meeting held in early December in Boston, the national association of insurance regulators maintained its focus on complying with the Gramm-Leach-Bliley Act and other related issues. The NAIC also dealt with a number of issues specifically impacting surplus lines and the wholesale surplus lines system.
Multi-State Surplus Lines Tax
For the first time in its history, a meeting of an NAIC Working Group dedicated to the multi-state surplus lines tax problem was held during the Winter National Meeting. At this meeting, the Working Group considered a number of informational items and issue papers provided to it by NAPSLO. The most important item considered was the report of the NAPSLO Special Committee on Surplus Lines Premium Taxation-“Principles and Guidelines for a Consistent Approach to Taxation.”
The Committee, which is chaired by Alaska Director of Insurance Robert Lohr and includes representatives of California, Georgia, Nevada and Texas, discussed the scope of the surplus lines tax problem and noted that one of the difficulties they face is the fact that the solution must include, in some states, tax collection entities other than the state insurance departments.
Director Lohr asked NAPSLO if it would be able to supply the Working Group with a survey of states and their surplus lines tax collection entities, as well as those states that employed allocation and non-allocation approaches to surplus lines taxation.
NAPSLO agreed to provide that information. The Working Group will meet in March to further discuss possible solutions to this issue.
Surplus Lines
The Surplus Lines Committee also accepted a report from the International Insurance Department (IID) Plan of Operation Review Group that recommended the IID Quarterly Listing and Quarterly Supplement be merged into a single document to become the IID Quarterly Listing. This will provide a complete listing of both previously approved and newly approved IID listed companies.
The Committee also accepted a recommendation from Lloyd’s actuaries that the current individual syndicate actuarial opinions published by the Council of Lloyd’s, the IID and the New York Insurance Department be merged into a single document incorporating all three opinions.
MGA
At the winter meeting, the Agents Licensing Task Force continued its review of the NAIC Model MGA Act. The Task Force reviewed the results of a survey of state insurance departments in regard to the existing state MGA laws and of MGA operations in the various states.
This current review of the model MGA bill was necessitated by an NAIC Executive Committee request that all NAIC committees and working groups review the current model bills under their jurisdiction and consider updating them.
The Task Force chair requested that the members further review the survey and be prepared at the next meeting in March to discuss any changes in the model MGA bill that the survey suggests.
National Treatment of Companies
One of the major results of Gramm-Leach-Bliley has been an NAIC project to create a national treatment of companies. The NAIC has named the program Accelerated Licensing Evaluation Review Technique (ALERT). A major component of the ALERT program is the creation of the Uniform Certificate of Authority Application (UCAA). At the NAIC meeting in Boston, the ALERT Working Group announced that 38 states are now accepting the UCAA.
However, there are still issues related to the UCAA that must be resolved. For example, if a company uses the UCAA to obtain nationwide licensing, 55 forms still have to be completed. In addition, the application fees in the various states differ, creating a problem with retaliatory laws in regard to the fees. These laws must be harmonized if the UCAA and the ALERT program are to be successful.
Clarification is also needed as to what constitutes an online electronic “signature.” The consensus of the ALERT Working Group is that a “check box signature” would be an appropriate and efficient e-signature, but many states are unsure as to whether this approach would conform to their current legal requirements. The issue will be revisited in March 2001 at the Spring NAIC Meeting.
In addition to the UCAA portion of the national treatment program, the NAIC announced the creation of a task force to execute a limited launch of a national treatment program. The core aspect of the program is to provide one contact point for companies and to streamline regulation in the areas of company licensing, solvency monitoring, holding company transactions and market conduct. States participating in this limited launch, which is to be conducted from June 2001 to November 2002, are California, Illinois, Maine, Nebraska, North Carolina, Pennsylvania, Texas, Virginia and Wisconsin. After the limited launch is evaluated, recommendations will be made for future implementation of the national treatment program on a nationwide basis.
The NAIC is also attempting to create a “best practices” guide for review of holding company transactions and company licensing. It hopes to have a draft of the “best practices” guide finalized by June 2001.
Speed to Market
At the NAIC meeting, it was announced that a limited launch of the Coordinated Advertising Rate and Form Review Authority (CARFRA) was being considered by the insurance regulators. CARFRA will provide insurers with a single electronic point for filing. Filings will be assigned to a team of analysts who will render an opinion on whether the filing meets an agreed-upon set of uniform national standards accepted by those participating in the CARFRA program.
The NAIC Speed to Market Working Group is considering recommendations regarding a number of operational efficiencies that can be quickly implemented by the states.
The recommendations include: 1) development of state transmittal checklists, 2) development of filing review standards checklist, 3) tightening filing review times so that the reviews are completed within 30 days of the filing, 4) giving priority to filings accompanied by a certification of compliance with published checklists, 5) development of a monitoring system, and 6) full implementation of the State Electronic Rate and Form Filing System (SERFF) in the states.
A limited launch of CARFRA is slated for the first and second quarters of 2001. Several issues must be addressed during the CARFRA limited launch including: 1) the development of systems to monitor competition, 2) identification of information needs required to monitor competition, and 3) discussion of the appropriate regulatory framework for personal lines.
Uniform Computer Information Transaction Act (UCITA)
At the Winter Meeting of the NAIC, a discussion was held on the pros and cons of the Uniform Computer Information Transaction Act (UCITA) proposed by the National Conference of Commissioners for Uniform State Laws. The purpose of UCITA is to create uniform commercial contract law relating to commercial software, multi-media products and computer data, and databases. UCITA is a broad commercial law and will apply to commercial transactions in which computer information is used, not just to insurance.
Proponents of UCITA argue that uniform law offers consistency and predictability for both vendors and users of software products by expanding the uniform commercial code to provide protection to information and the computer industries.
Opponents strenuously argue that UCITA offers a serious threat to insurers because software vendors, under the act, will have the right to withdraw software licenses, potentially causing serious damage to insurers and business operations. In addition, insurers would likely experience additional operating costs in order to comply with UCITA.
Specifically, the UCITA proponents note that UCITA allows a vendor to withdraw a software license without notification. Licensees would be unable to pursue breach of contract actions in the courts and the vendors would be allowed to use self-help remedies, which include disabling software from a remote location. The NAIC is reviewing UCITA to determine whether or not the Association should endorse the uniform law.
NAIC Elections
At the Boston meeting, the NAIC elected its new officers for the year 2001. Those elected were: Kansas Insurance Commissioner Kathleen Sebelius, president; Iowa Insurance Commissioner Terri Vaughan, vice president; and Arkansas Insurance Commissioner Mike Pickens, secretary-treasurer. Kentucky Insurance Commissioner George Nichols, who served as president during 2000, announced his resignation as Kentucky Commissioner shortly after the meeting ended. He gave no indication of his future plans.