Surplus Lines Reforms Expected To Pass Unchanged

Jun 1, 2010

National Underwriter Magazine
May 31, 2010

By MARK E. RUQUET

Palm Desert, Calif.
 

Officials with the American Association of Managing General Agents expressed confidence that few, if any changes would be made in the surplus lines elements of financial services regulatory reform as the House and Senate work out differences in their respective bills.

“The stuff that we have is mundane stuff, so I think that will be left alone and not amended or edited out,” according to Wayne G. Forest Sr., president-elect of the AAMGA and a member of Forest Insurance Facilities in Metairie, La. His observations came at a press conference with other AAMGA officials last week here during the association’s 84th annual meeting.

“It is obviously a large law—a lot of which has nothing to do with us insurance people,” said AAMGA’s immediate past president, Curtis Anderson, who is president of National Binding/Programs for Risk Placement Services Inc., in Scottsdale, Ariz.

“But the wording we have been trying to get pushed through to simplify our segment of the business has made it into the bill, and so we are very happy with that,” he added.

While no changes in the bill’s E&S language are expected, Euclid Black, past-president of AAMGA and president of Black White Associates in Louisville, Ky., said that if practical modifications are needed they will have to wait until President Barack Obama signs the bill and implementing regulations are written.

“We can’t fix the deficiencies in this law until it has been passed,” he said.

AAMGA Executive Director Bernd G. Heinze observed that the one thing the bill will do is allow the industry to police the payment of surplus lines taxes to the states, while giving the National Association of Insurance Commissioners the obligation to determine how that will be done.

The bill’s surplus lines reform section aims to eliminate the current state-by-state system of making reports and tax payments by excess and surplus lines companies and MGAs, and instead have the state in which the insured is domiciled collect and distribute reports and monies.

An AAMGA study found that under the current system there is between $70 million and $100 million spent on overhead, according to Mr. Heinze.

While it cannot be predicted whether the reforms would bring down prices for insurance buyers, there would be an ultimate benefit in efficiency for producers, companies and customers, he said.

Mr. Forest noted that once the bill is signed into law, the next hurdle would be implementation. “This bill has been approved by the NAIC in its format, but the next step will be how these 50 states are going to react once it becomes law,” he said. “Are we going to have in-fighting between the 50 states? Or are they going to go along with it and not change some things, or try to change some other things?”

“If this bill does get to President Obama’s desk, and does get signed—which we think it will—I think the NAIC will take a big hand in where this goes from that point on,” Mr. Forest added.

He said with Louisiana Insurance Commissioner James J. Donelon’s leadership on the NAIC’s Surplus Lines Committee, he believes there is a strong voice for effectively shepherding through rules to implement the legislation.

He conceded that each state will aim to protect its own interests, but this reform is something the NAIC wanted, and the expectation is they will develop effective rules for ease of doing business. Mr. Curtis added that the states need this efficiency as much as the industry does.

The bill—known as the Wall Street Reform and Consumer Protection Act, or H.R. 4173—dictates that in any multistate placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed—the insured’s “principle place of business.”

Those rules include diligent search requirements (declinations), premium tax allocations and eligibility standards. The new rules are to go into effect one year after the bill becomes law.

Ken Crerar, president of the Council of Insurance Agents and Brokers, predicted that once the bill becomes law, the NAIC would attempt to create an interstate compact governing surplus lines transactions and premium tax allocations—something his association would support. 

Mr. Crerar said in a note to CIAB members that he expects to see “a flurry of efforts to change state law in anticipation of implementation of the surplus lines provisions.” For example, he said, “many states dictate that only a proportion of premium taxes are due for risks that are located in their states.”

“We expect all states to pass laws or regulations that would impose premium taxes in line with the provisions of the new law—wherein they will seek to collect 100 percent of premium taxes for those transactions wherein the insured is located in their jurisdiction,” he said. 

Officials of the National Association of Professional Surplus Lines Offices called the Senate’s passage of its bill “a giant step toward achieving needed reforms of surplus lines regulation.” NAPSLO President Marshall Kath said the bill will allow E&S regulation “to operate more efficiently and effectively.”

Palm Desert, Calif.

Officials with the American Association of Managing General Agents expressed confidence that few, if any changes would be made in the surplus lines elements of financial services regulatory reform as the House and Senate work out differences in their respective bills.

“The stuff that we have is mundane stuff, so I think that will be left alone and not amended or edited out,” according to Wayne G. Forest Sr., president-elect of the AAMGA and a member of Forest Insurance Facilities in Metairie, La. His observations came at a press conference with other AAMGA officials last week here during the association’s 84th annual meeting.

“It is obviously a large law—a lot of which has nothing to do with us insurance people,” said AAMGA’s immediate past president, Curtis Anderson, who is president of National Binding/Programs for Risk Placement Services Inc., in Scottsdale, Ariz.

“But the wording we have been trying to get pushed through to simplify our segment of the business has made it into the bill, and so we are very happy with that,” he added.

While no changes in the bill’s E&S language are expected, Euclid Black, past-president of AAMGA and president of Black White Associates in Louisville, Ky., said that if practical modifications are needed they will have to wait until President Barack Obama signs the bill and implementing regulations are written.

“We can’t fix the deficiencies in this law until it has been passed,” he said.

AAMGA Executive Director Bernd G. Heinze observed that the one thing the bill will do is allow the industry to police the payment of surplus lines taxes to the states, while giving the National Association of Insurance Commissioners the obligation to determine how that will be done.

The bill’s surplus lines reform section aims to eliminate the current state-by-state system of making reports and tax payments by excess and surplus lines companies and MGAs, and instead have the state in which the insured is domiciled collect and distribute reports and monies.

An AAMGA study found that under the current system there is between $70 million and $100 million spent on overhead, according to Mr. Heinze.

While it cannot be predicted whether the reforms would bring down prices for insurance buyers, there would be an ultimate benefit in efficiency for producers, companies and customers, he said.

Mr. Forest noted that once the bill is signed into law, the next hurdle would be implementation. “This bill has been approved by the NAIC in its format, but the next step will be how these 50 states are going to react once it becomes law,” he said. “Are we going to have in-fighting between the 50 states? Or are they going to go along with it and not change some things, or try to change some other things?”

“If this bill does get to President Obama’s desk, and does get signed—which we think it will—I think the NAIC will take a big hand in where this goes from that point on,” Mr. Forest added.

He said with Louisiana Insurance Commissioner James J. Donelon’s leadership on the NAIC’s Surplus Lines Committee, he believes there is a strong voice for effectively shepherding through rules to implement the legislation.

He conceded that each state will aim to protect its own interests, but this reform is something the NAIC wanted, and the expectation is they will develop effective rules for ease of doing business. Mr. Curtis added that the states need this efficiency as much as the industry does.

The bill—known as the Wall Street Reform and Consumer Protection Act, or H.R. 4173—dictates that in any multistate placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed—the insured’s “principle place of business.”

Those rules include diligent search requirements (declinations), premium tax allocations and eligibility standards. The new rules are to go into effect one year after the bill becomes law.

Ken Crerar, president of the Council of Insurance Agents and Brokers, predicted that once the bill becomes law, the NAIC would attempt to create an interstate compact governing surplus lines transactions and premium tax allocations—something his association would support. 

Mr. Crerar said in a note to CIAB members that he expects to see “a flurry of efforts to change state law in anticipation of implementation of the surplus lines provisions.” For example, he said, “many states dictate that only a proportion of premium taxes are due for risks that are located in their states.”

“We expect all states to pass laws or regulations that would impose premium taxes in line with the provisions of the new law—wherein they will seek to collect 100 percent of premium taxes for those transactions wherein the insured is located in their jurisdiction,” he said. 

Officials of the National Association of Professional Surplus Lines Offices called the Senate’s passage of its bill “a giant step toward achieving needed reforms of surplus lines regulation.” NAPSLO President Marshall Kath said the bill will allow E&S regulation “to operate more efficiently and effectively.”