NAIC Surplus Lines Clearinghouse Plan of Operation Subgroup Report: February 17

Feb 21, 2011


The National Association of Insurance Commissioners (“NAIC”) Surplus Lines Implementation Task Force Clearinghouse Plan of Operation Subgroup (“Subgroup”) met on February 17, 2011 to continue its discussion on creating a plan of operation for a Clearinghouse that would be required by the proposed Nonadmitted Insurance Multi-State Agreement (“NIMA”). 

The proposed Clearinghouse would facilitate the collection and distribution of surplus lines taxes for those states that may adopt NIMA, which is designed to address state-based surplus lines reform mandated by the Non-admitted and Reinsurance Reform Act in Title V of H.R. 4173, also known as the Dodd-Frank Act of 2010.

Discussion focused on the details of creating a Request for Proposal (“RFP”) to procure a vendor to operate the Clearinghouse.

NAIC staff RFP specialist Jim Woody offered the following suggestions to assist the Subgroup in creating an optimal RFP:

  • Identify precisely what needs to be accomplished: Describe what kind of related system is needed, establish a timeline, explain how many transactions will be processed and outline reporting requirements;
  • Put one person in charge to facilitate the line of communication; and
  • Make sure the RFP selection criteria is established ahead of time.

Further, Mr. Woody said that an RFP should have the following components:

  • A cover letter outlining the project’s scope and a list of responsible parties
  • A checklist of required elements
  • A conflict-of-interest form
  • A mutual confidentiality agreement
  • Contractual requirements
  • The RFP, itself

Subgroup Chairman and Alaska Insurance Director Linda Hall said the question of confidentiality relating to trade secrets was something that would have to be discussed further.   She suggested that Subgroup members begin compiling sections of the RFP with information they have already collected and add details as more information becomes available.

Ann Fletcher, a representative from the state of Delaware, suggested Subgroup members assemble the information they have already collected and return next week with a draft.

To facilitate this process, Chairman Hall asked Subgroup members to submit proposed revisions to the draft topics included in the outline of the Clearinghouse plan of operation.  The proposed changes then will be made available to all Subgroup members for review.

The draft topics relating to the Clearinghouse plan of operation include:

  • Licensing and account identification
  • Recordkeeping
  • Required data collection
  • Maintenance of state-specific data
  • Assessment and receipt of tax payment

Discussion then turned to the scope of the Clearinghouse’s responsibilities.  One of the issues of primary concern to Subgroup members is whether the Clearinghouse should be responsible for verifying a prospective vendor’s license status.

“I think we are expecting too much from the Clearinghouse vendor,” Ms. Fletcher said.  “The Clearinghouse should take in what is paid, and give out what is owed.   They should be a money-in,  money-out operation.”

However, Cindy Donovan, a representative from Indiana, disagreed.

“Our goal was to get a one-reporting basis.  From what I am hearing it looks like we are going continue to have a two-prong system,” Ms. Donovan said.  “(The Clearinghouse vendor) will still have to make a report to the state in addition to providing information to the Clearinghouse.”

Ms. Donovan wondered if a producer’s license could be verified electronically. 

“If (the vendor is) not licensed, there should be a red flag.  I thought part of this process was to make the regulatory process a little easier,” she said.

Chairman Hall agreed that the matter needs careful consideration. 

“A state going out to the Clearinghouse and pulling the information and determining if a broker does have a license, that doesn’t seem like it does anything to streamline the process,” Chairman Hall said.   “I can’t envision states with large numbers of surplus lines (carriers) to have to go out and pull all that information.”

She said the Subgroup will have to reach a consensus on the matter soon.

In other business, the Subgroup agreed to review a sample NIMA audit manual at its next meeting.

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

The sample audit manual, along with the other meeting materials and interested party comments, is attached for review. 

The materials include a copy of a surplus lines reporting form (entitled “Multi-State Surplus Lines Premium Tax Report”) that was cited as containing information that would be helpful in addressing Sections II and IV of the proposed Outline for Clearinghouse plan of operation.


Should you have any questions or comments, please contact Colodny Fass.



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