Surplus Lines Insurance Multi-State Compliance Compact (‘SLIMPACT’) Commission Revises Draft Bylaws, Forms Working Groups

 

The Surplus Lines Insurance Multi-State Compliance Compact (“SLIMPACT”) Commission (“Commission”) met via Webinar on Tuesday, October 11, 2011, to review and discuss proposed changes to its draft bylaws.  The Commission also created two working groups to formulate administrative and reporting requirements for SLIMPACT.

A copy of the draft bylaws are attached.

Commissioner Sharon Clark of Kentucky called the meeting to order.  In attendance were representatives from Alabama, Indiana, Kansas, Kentucky, New Mexico, Rhode Island, Tennessee and Vermont.

“I was trying to see how much further we can go and get on down the road with our charges with the SLIMPACT, while still recognizing the states’ hesitancy in making a formal vote until the tenth state joins,” Commissioner Clark said.

Most of the 90-minute long meeting was spent reviewing revisions to the Commission’s draft bylaws that had been proposed by Rhode Island representatives.

Rhode Island Superintendant of Insurance Joe Torti explained that many of the proposed revisions were minor grammatical changes, but some included additional wording to clarify or further explain certain responsibilities or duties of SLIMPACT.

“These are all suggestions and they shouldn’t be taken as anything more than that,” Superintendant Torti stated.  “If anyone has any problems, please don’t hesitate to say so.  We thought these were the necessary changes but we obviously could be wrong in certain areas.  So if you don’t like certain additions we have made we would be happy to revise them.”

“There is no pride in authorship here.  We just thought we would help out by coming up with these,” Mr. Torti added.

Beth Dwyer, general counsel for the Rhode Island Department of Insurance, went through the proposed bylaws section by section, explaining the reasoning behind the proposed changes.  

Some of the highlights and related discussion follow:

Article II:  Changes included the addition of an entire section on Tax Collection and Payment.  The purpose of the section was to explain that the participating states would agree to collect multi-state risk tax and use the same or similar resources to collect the multi-state risk tax as states use in the collection of single-state risk tax, Ms. Dwyer said.

Article IV:   Revisions outlined the duties and rights of “contracting states.”  The section states that the Commission may enter into a contract with a non-compacting state upon a two-thirds vote of the then-existing Commission members.  It also provides that the Commission shall designate a signatory of such contract at the time of approval of the contractual terms and the agreement to admit the particular state.

What stirred the most discussion were two options included in this section in regard to contracting states.  The first option declares that a state which has entered into a valid contract with the Commission shall participate in the Clearinghouse and be bound by the rules of the contract and Compact as to multi-state risk tax allocation, while not being a member of the Commission and not being entitled to vote on any Commission matters.

The second option declares that a state which has entered a valid contract with the Commission shall, for all purposes, be considered a member of the Commission, including but not limited to a vote on all matters equal to that of any compacting state, participation on the Executive Committee and all other committees established by the Commission.

“It seems to us that perhaps a state that is contracting shouldn’t have all the same rights as a compacting state.  They did pass it in their Legislature.  Should they get the same rights to vote and everything else, but who would contract with us if they really don’t have real voting rights?”  Mr. Torti wondered.  “We are kind of caught in the middle there.  I am not sure exactly where this should go. Obviously we think the members should talk about it.”

Mr. Torti said the Commission received comments from Texas informing them that it would never join anything without voting rights.  That is why the second option was included, he stated.

Commissioner Clark said contracting states’ rights should be defined according to Legislative intent, and asked state lawmakers in attendance to offer their thoughts.

State Representative Bill Botzow of Vermont said that, if legislation gives an insurance department the right to contract, it might not be reasonable to bar a contracting state from voting.

“If the state has the authority to contract and there is legislative oversight of that authority to contract, why wouldn’t they have the right to vote?  Which would lead you to the second (option),” Mr. Botzow said.

New Mexico Insurance Superintendant John Franchini suggested allowing a contracting state to vote if it would convince a tenth state to join SLIMPACT.

State Representative George Keiser of North Dakota acknowledged that some states might not want to join the compact, but might be willing to contract with it.  He said their rights – if different — need to be clearly defined.

“Certainly, they should not have every benefit available to a compacting state,” Mr. Keiser stated.  “From member states’ position, contracting states need to have certain guidelines especially in relation to time.  How long of a contract is the minimum contracting period?  We certainly do not support a situation where a state could come in, stay for three months and then get out.”

He said there was definitely a difference in North Dakota with regard to the rights and privileges of contracting and compacting states.

As a compromise, Superintendant Torti suggested a third option:  That contracting states be able to only vote on matters related to adopting or changing the tax allocation formula.

“That makes a lot of sense to me,” Mr. Keiser stated.

Commissioner Clark said there is much to consider for future discussion.

Article V:  Revisions were primarily verbiage changes to this section, which outlines the responsibilities and makeup of the Executive Committee.

Article VI:  The key revision included a provision that allows Commission officers to serve for multiple consecutive terms if elected by the Commission.  The intent of this change is to retain some institutional knowledge, Ms. Dwyer said.

Article VII:  One revision to this section, which addresses “Withdrawal, Default and Termination,” outlines the procedure that must be followed in order for a state to withdraw from the compact.  The change lengthens the required 30 days notice to 90 days.

 Article XIV:  This section on the Dissolution of the Compact includes a new provision that states dissolution will not affect the collection and distribution of multi-state risk taxes as required under the Compact  for the period of time the state was a participating state, regardless of when the multi-state risk taxes were assessed, paid or collected.

It was agreed the revisions would be incorporated into the draft bylaws, which would be updated and re-circulated by the next meeting.

After completing the draft bylaws revisions, Commissioner Clark explained that two working groups needed to be formed to address upcoming issues that will affect SLIMPACT:   a Reporting Requirements Working Group and an Administration of the Compact Working Group.

Indiana, Kentucky and North Dakota agreed to participate in the Reporting Requirements Working Group.  Rhode Island, Vermont and New Mexico will participate in the Administration of the Compact Working Group.

During an August 19, 2011 meeting, Commission members had disagreed on their ability to take a formal vote on bylaws.  The disagreement stemmed from the fact that SLIMPACT membership has not reached the 10-member threshold required to allow for a formal vote on, and adoption of certain items, including rules.  Representatives of several member states have supported waiting on final adoptions until a tenth state compacts or contracts with SLIMPACT.

Commission meetings are co-hosted by the Council of State Governments, the National Conference of Insurance Legislators and the National Conference of State Legislatures.

 

 

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

 

 

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