Ready or Not, New Surplus Lines Law Is Here
The implementation deadline for the Nonadmitted and Reinsurance Reform Act has arrived. States have been scrambling over the past year to update surplus lines laws that will conform with NRRA requirements, while agents and brokers have tried to prepare for changes on how they would process multi-state surplus lines accounts on July 21, 2011 and after.
The NRRA mandates that beginning July 21, 2011 the insured’s home state will be the only state with jurisdiction over multi-state surplus lines transactions and the only state that can require a tax be paid by the broker. The law implements criteria that allow more sophisticated and larger commercial purchasers to be exempt from the diligent search requirement. The new law also will require additional data reporting and changes surplus lines insurer eligibility rules.
Overall 43 states passed legislation in the last year to bring their state laws into compliance with the NRRA; three states (Iowa, Illinois and Colorado) adjourned without taking action; and four states (Michigan, Wisconsin, Massachusetts and South Carolina) and the District of Columbia have not passed any legislation related to NRRA. Of the 43 states, three states (Delaware, Oregon and New Jersey) have approved legislation but the governors have not taken action on the bills.
The most recent states to enact compliance legislation are California and Texas.
Phil Ballinger, executive director of the Texas Surplus Lines Stamping Office, says his office has tried its best to update agents and brokers on what to do post-July 21. Despite these efforts, confusion remains.
“Agents have been calling us for a number of weeks panicked-stricken, looking for advice on what to do. And frankly we are not able to tell them what to do in much detail because it’s such a moving target,” he says.
That moving target has to do with whether states will support a tax sharing allocation agreement to handle the allocation of surplus line premium taxes in the future.
At the July 21 deadline, no such compact or tax sharing agreement was in place. But two proposals – Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT), supported by the National Conference of Insurance Legislators (NCOIL) and several industry groups, and another supported by the National Association of Insurance Commissioners, called the Non-admitted Insurance Multi-State Agreement (NIMA) – are creating chaos for agents and brokers when it comes to NRRA compliance.
Ten states and one territory (Connecticut, Florida, Hawaii, Mississippi, Nebraska, Nevada, Puerto Rico, Louisiana, South Dakota, Utah and Wyoming) had signed an agreement to be part of the NIMA as of July 21, and nine states had passed SLIMPACT.
Richard Bouhan, executive director of the National Association of Surplus Lines Offices (NAPSLO), says he understands why brokers may be concerned over what’s to come in an NRRA world, but believes the transition will be smoother than some anticipate.
“Change is always difficult,” Bouhan says. “Brokers have been working for quite some time on policies that will be effective on July 21 or after, and so have already been operating under the new NRRA rules.”
Bouhan notes that most surplus lines brokers won’t even be affected by the NRRA because most risks are not multi-state risks. “Some 90-95 percent of surplus lines risks probably are single state risks and are not going to change” under NRRA, he says.
For brokers impacted by NRRA changes, the new rules will make regulation and taxes for multi-state risks much simpler, according to Bouhan. “The brokers pay now the tax that is due to one home state and only have to comply with that state’s placement laws for surplus lines. … That’s a lot clearer and better than we had,” he says.