Florida Surplus Lines Service Office National Clearinghouse Committee Report: May 31, 2011

May 31, 2011


The Florida Surplus Lines Service Office (“FSLSO”) held a National Clearinghouse Committee (“Committee”) meeting today, May 31, 2011, to discuss the National Association of Insurance Commissioners’ (“NAIC”) response to an FSLSO query about a potential partnership between the two organizations to deliver multi-state tax clearinghouse operational services pursuant to surplus lines-related reform provisions in the Nonadmitted and Reinsurance Reform Act of 2010. 

After approving the minutes from the May 17, 2011 Committee meeting, FSLSO Executive Director Gary Pullen told Committee members he had received an email from the NAIC’s Director of Insurance Products and Services Julienne Fritz regarding the FSLSO’s proposal to divide the operational/administrative and technical duties of running the NAIC’s proposed Nonadmitted Insurance Multi-State Agreement Clearinghouse (“Clearinghouse”).

Committee members reiterated their ongoing concern that, for legal and financial reasons, they would prefer the FSLSO only provide technical services to the Clearinghouse.  Mr. Pullen said the NAIC was interested in dividing duties, but wanted to be trained on the required software, as well as to be the only party allowed to modify it in the future.  This request represented a substantial deviation from the Committee’s earlier recommendation that the software company Infinity be the only party allowed to modify the software.   Mr. Pullen added that he was concerned about intellectual property rights in regard to technical information that has not yet been shared with the NAIC, because of how it could the affect the Clearinghouse Request for Proposal (“RFP”).  The NAIC is expected to issue an RFP sometime in June.

“In the development of an RFP, people can sort of steer … toward you or away from you based on the knowledge they have on your particular solution.  So, in event we weren’t able to become partners (with the NAIC) and they did assist in the development of the actual writing of the RFP requirements, then it could present some competitive problems for us having disclosed this kind of information,”  Mr. Pullen said.

“I think retaining control of the software and any of its modifications in ownership is a critical component for us ensuring that we have a continued position in the operation of the Clearinghouse,”  Mr. Pullen explained.  “It is possible if we were to provide access to the NAIC or anyone else, they would-in a matter of time-learn the programming language, the codes, and the business rules that comprise the system that really reflect our intellectual property value and, at that point, it would be conceivable and possible they could develop their own product based on that knowledge.  We would have a difficult time protecting that from a copyright perspective.”

One Committee member expressed concern that software modified by the NAIC might be difficult for producing agents to use.

“The whole program is dependent upon agents putting in data and the Clearinghouse overseeing, managing and reviewing data that has been put in by other people.  If the NAIC starts designing something for themselves, it’s not going to work for the producers,” he said.

After a brief discussion, Committee members unanimously agreed to deny the NAIC’s request to be trained on the Infinity software and to also be allowed to modify the software in the future.

“I don’t believe we can give away the rights,” added one Committee member.

Mr. Pullen added that Infinity had expressed some interest in handling the operational and administrative aspects of running the Clearinghouse.  He did not have further details today.

With no further business before the Committee, the meeting was adjourned.



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