Despite no contract, Florida Surplus Lines Service Office Committee agrees to NIMA Clearinghouse preparation expenditure
Nov 1, 2011
The Florida Surplus Lines Service Office (“FSLSO”) National Clearinghouse Committee (“Committee”) voted today, November 1, 2011, to spend up to $520,000 in start-up costs to meet a January deadline to create a surplus lines premium tax Clearinghouse, even though no Clearinghouse operations contract has yet been signed with the Nonadmitted Insurance Multi-State Agreement (“NIMA”) member states.
Committee members – some of them reluctantly – unanimously approved the Clearinghouse expenditures during a teleconference after Florida Office of Insurance Regulation (“OIR”) Senior Attorney Bruce Culpepper assured the Committee that a contract for Clearinghouse operations would soon be signed.
Clearinghouse operations must be in place by January 1, 2012 to allow the collection and processing of First Quarter 2012 premium tax filings and payments, which would be due May 15, 2012 pursuant to NIMA’s current terms.
“It’s going to be done. NIMA is going to have a Clearinghouse. We wouldn’t have come this far if we weren’t going to make this thing work,” Mr. Culpepper told the Committee. He said the NIMA-member states on October 28, 2011, formed Nonadmitted Insurance Multi-State Association, Inc., a fully-incorporated non-profit entity which could enter into contractual agreements. “I certainly recognize that no contract is final until it is signed but this one is going forward. We would fully support the Service Office taking what action it needs to do to get this thing running by January 1.”
Once operational, the Clearinghouse will ultimately collect and distribute premium taxes pursuant to surplus lines reform provisions of the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”).
NIMA-member states had originally hoped to have the Clearinghouse operational by November 15, 2011 in order to collect Third Quarter 2011 premium taxes but the timelines required for finalizing software contracts and services, along with other start-up issues were too lengthy. NIMA member states voted on October 21, 2011 in an emergency session to revise the effective date of NIMA’s multi-state tax allocation provision to January 1, 2012.
FSLSO Executive Director Gary Pullen told Committee members that approximately $260,000 worth of work would need to be performed in November, and another $260,000 worth of work performed in December to have the Clearinghouse infrastructure in place by January 1, 2012.
“If there wasn’t an agreement, we could just lose the $260,000 to $500,000?” asked Committee member Dan O’Leary.
“That is correct,” Mr. Pullen replied.
A delay in the ramp-up of Clearinghouse operations could have a cascading affect on brokers and policy holders, Mr. Pullen explained.
“We will miss the billing cycle … brokers and policyholders will have to retain data for a whole quarter and not pay the tax, and not be clear on what the exact tax liability is,” Mr. Pullen noted. “It could be a real administrative nightmare for everyone involved.”
Mr. Culpepper told the Committee he felt “very comfortable” about moving forward with preparations for a contract-signing with Nonadmitted Insurance Multi-State Association, Inc.
“NIMA is not going away and we are not going to die on the vine,” Mr. Culpepper stated. “The clear choice for the Clearinghouse is certainly the Service Office.”
Mr. Pullen will meet with the NIMA-member states on Friday at the National Association of Insurance Commissioners’ Fall National Meeting, to relate the urgency of signing a Clearinghouse operations service contract, Mr. Culpepper said.
Asked if he had further questions, Committee member O’Leary answered, “No, just major questions.”
“It’s a lot of money,” Mr. O’Leary said.
With no further business before the Committee, the meeting was adjourned.
Should you have any questions or comments, please contact Colodny Fass.
To unsubscribe from this newsletter, please send an email to Brooke Ellis at bellis@cftlaw.com.