Florida Surplus Lines Service Office Moves Forward with Software Licensing Agreement
Aug 25, 2011
The Florida Surplus Lines Service Office (“FSLSO”) National Clearinghouse Committee (“Committee”) met today, August 25, 2011, to hear an update on the status of negotiations with a software provider should the FSLSO’s technology platform be chosen next week to service the Nonadmitted Insurance Multi-State Agreement (“NIMA”) Clearinghouse. The Clearinghouse will ultimately collect and distribute premium taxes pursuant to surplus lines reform provisions of the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”).
FSLSO Executive Director Gary Pullen told Committee members the participating NIMA states are expected to decide who will handle their Clearinghouse operations during next week’s National Association of Insurance Commissioners (“NAIC”) Summer 2011 meeting in Philadelphia. The meeting runs from August 29 to September 1.
On August 16, the Committee had voted to begin negotiations with Infinity Software (“Infinity”) to serve as the licensee for the FSLSO’s technology platform. Infinity has served as the FSLSO’s information technology services partner for years and has also expressed interest in serving as the Clearinghouse operator.
An initial draft of the licensing agreement has been finalized and will be presented to Infinity, at which time negotiations will begin, Mr. Pullen stated.
He noted that the NAIC or some other entity could be selected to run the Clearinghouse next week. A few months ago, Committee members considered partnering with the NAIC if it would provide Clearinghouse administrative services, but abandoned that idea after concerns arose over software access.
“That then raises the question for us – do we proceed with this licensing agreement in the event we are not selected as the technology platform for the NIMA Clearinghouse? I think we do, because there is other business or commercial opportunities separate from NIMA — such as the Surplus Lines Insurance Multi-state Compliance Compact or going to individual states,” Mr. Pullen stated.
“We want to retain the control and the ownership and allow only our technology provider to have access to our source code,” Mr. Pullen emphasized.
The actual entity that would be pursuing the business relationships would likely be a Limited Liability Corporation, Mr. Pullen explained. He said FSLSO’s technology platform is universal enough that with modifications it could easily serve a variety of entities.
If the FSLSO technology platform is chosen by NIMA, additional programming work would need to be done in order for the Clearinghouse management system to become operational, Mr. Pullen stated. Those costs would be borne by the FSLSO. However, any subsequent modifications or enhancements would be paid for by the client, he said.
Initial start-up costs are estimated at a high of $750,000, an expenditure that would require FSLSO Board of Directors’ approval, Mr. Pullen said.
“That’s a lot of money,” said one Committee member.
“That it is,” Mr. Pullen agreed.
“One of the things I am sure will be discussed is that if we have to put up an additional significant amount of money … that we may modify this licensing agreement so that we get … a greater return on our investment in the early years in order to recoup these costs in a shorter amount of time,” he said.
“Some of the things that are included in that number are not items that we would agree are necessary to make the product fully operational, but are there for other related kinds of services,” Mr. Pullen added. An example would be providing training webinars for brokers, he stated.
“We’ve got to finalize the licensing agreement … and then we have to get the business as the NIMA Clearinghouse. If either of those things doesn’t happen, then this gets delayed to another day, if at all,” Mr. Pullen stated.
With no further business before the Committee, the meeting was adjourned.
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