Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) Commission holds first in-person meeting

The Surplus Lines Insurance Multi-State Compliance Compact (“SLIMPACT”) Commission (“Commission”) held its first in-person Commission meeting yesterday, July 15, 2011, without having the requisite 10 states to effectively adopt Compact rules and create a Clearinghouse.  As a result, the Commission did not have authority to approve a draft Rule to establish procedures for the adoption, amendment and repeal of SLIMPACT Commission rules or to establish Clearinghouse operations.

Instead, Commission members reviewed minor revisions to the draft SLIMPACT bylaws and the draft Rule, agreeing, with limited discussion, to incorporate the updates and proposed amendments.

The meeting was held in conjunction with the National Conference of Insurance Legislators Summer meeting in Newport, Rhode Island.

SLIMPACT became effective and binding upon its enactment by two states.  Currently, the number of participating states has reached nine.

The Commission did not formally vote to approve the bylaws because some states had not sent in appointment letters to the Council of State Governments designating official voting members.  However, those in attendance voted informally to approve the revised bylaws and rule.

A formal vote on the bylaws will be conducted at another meeting, it was decided.

The revised draft bylaws and draft Rule, which are modeled after those used by the Interstate Insurance Product Regulation Compact Commission, are attached.

Legislators and insurance regulators from Alabama, Indiana, Kansas, Kentucky, New Mexico, North Dakota, Rhode Island, Tennessee and Vermont participated in the meeting.  The Commission had met three previous times to discuss the draft bylaws, Rule and proposed allocation formulas in preparation for possible adoption at today’s meeting.

For the majority of the meeting, the Commission reviewed several proposed allocation formulas for the distribution of premium taxes.  It had initially reviewed and discussed these proposed methodologies during a July 7 meeting.

Indiana Deputy Insurance Commissioner Cynthia Donovan spoke first, briefly voicing support for a complicated allocation formula developed by the National Association of Insurance Commissioners’ Surplus Lines Task Force.  She said there were no changes from what she proposed at the last meeting.  The proposal drew no discussion.

Excess Lines Association of New York Executive Director Dan Maher offered a different tax allocation methodology for SLIMPACT, which he described as a “market share approach” that, in his opinion, would be simple, uniform, fair and efficient.

“Currently there are numerous tax allocation methodologies.  They vary greatly from state to state.  The formulas are greatly complicated and require a significant amount of data collection by the broker from the insured,” Mr. Maher stated.  “The broker has to get all this data and then put it together state-by-state and break it down different ways.”

Under this market share allocation proposal, each state would tax each multi-state risk based upon the percentage that state’s multi-state premium bears to the aggregate countrywide multi-state surplus lines premium.

Calling the proposal “a bit of a game changer,” Mr. Maher explained that every dollar of every state’s premium is taxed but no dollar of premium is taxed twice.  Each state taxes premium based on a fair nexus to the state, he stated.

“Because this approach is proportional, large surplus lines states will have an incentive to join,” Mr. Maher added.

An advantage of the system is that the broker does not have to collect large amounts of data from the insured that would otherwise have to be produced.

“We think it’s simple.  We think it’s fair,” he said.

The proposal raised numerous questions with at least two Commission members requesting more information and more examples from a variety of states on how the methodology would work.

“I am not understanding it.  Run your proposal with actual dollars and take a variety of states,” one Commission member said.

Kentucky submitted a revised tax allocation proposal that was distributed to the Commission during the meeting, but it drew little discussion.

“I think Kentucky’s proposal goes a long way to simplify the process while still gleaning the information that is needed,” Ms. Donovan said.

Joe Torti, Superintendant of Insurance for Rhode Island, said the Kentucky proposal appeared to be similar to the way taxes are collected in Rhode Island.

It was agreed that all submissions merited further review and would be discussed again at a future Commission meeting.

Before the meeting concluded, a representative from the Council of State Governments gave a brief presentation on how his organization could assist with the many operational issues involved with the launch of SLIMPACT.

Several Commissioners thanked him for the assistance his organization has provided, but agreed it would be prudent to hear proposals from others who might also be able to assist with setting up SLIMPACT operations.

Commission members agreed to schedule another meeting in a few weeks.  With no other business before the Commission, the meeting was adjourned.

SLIMPACT was developed to implement provisions of the Nonadmitted and Reinsurance Reform Act of 2010.  The Commission was established to fulfill SLIMPACT objectives through joint cooperative action among the compacting and contracting states.

Complete meeting materials are attached for review.

 

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

 

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