Florida Office of Insurance Regulation Presents a ‘Slimmer Version of SLIMPACT’ to NAIC Surplus Lines Implementation Task Force

 

After having cited constitutional issues as the reason the State of Florida would be unable to join the proposed Surplus Lines Insurance Multi-State Compliance Compact (“SLIMPACT”), the Florida Office of Insurance Regulation, represented by its General Counsel, Steve Parton, at a September 20, 2010 National Association of Insurance Commissioners (“NAIC”) Surplus Lines Implementation Task Force (“Task Force”) meeting, presented an alternative proposal entitled “Surplus Lines Insurance Multi-State Agreement (‘SLIMA’).”

Mr. Parton described SLIMA as a ” . . .   proposed draft agreement that does not include the potentially unconstitutional delegation authority of the SLIMPACT document or the complexity of the ( International Fuel Tax Agreement).  This agreement contains perhaps the best of both and some original provisions to fit our needs under the (Non-Admitted and Reinsurance Reform Act).  It is a work in progress and comments and suggestions are welcome.”

Florida’s SLIMA proposal states that the agreement would:

• “Protect the premium tax revenues of Participating States through facilitating the payment and collection of premium taxes on Surplus Lines Insurance and Independently Procured Insurance for Multi-State risks to be allocated among the States in accordance with the Premium Tax Data Allocation and Formula . . .” (The Formula is contained in a SLIMA appendix and based on rates established by the home state).
• “Coordinate reporting Premium Tax Data and Transaction Data on Multi-State Risk(s) among Participating States and Non-participating States; and
• “Perform these and such other related functions as may be consistent with the purposes of the Surplus Lines Insurance Multi-State Agreement.”

SLIMA is outlined on pages 4-13 of the “SLITF–written comments” document in the attached meeting materials.

Discussion at the most recent Task Force meeting on September 13 had centered on utilizing elements of SLIMPACT, the International Fuel Tax Agreement (“IFTA”), or a dual approach to accomplishing the NRRA mandate.

 

State-by-State Discussion

Task Force Chairman and Louisiana Insurance Commissioner Jim Donelon afforded other regulators and interested parties the opportunity to expand upon their submitted written comments on state-based solutions to develop, implement the surplus lines provisions in the Non-Admitted and Reinsurance Reform Act (“NRRA”), which is part of the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

 

Alaska

Alaska Division of Insurance Director Linda Hall expressed concerns with preserving states’ current reciprocity requirements should SLIMPACT be adopted in its current form.   Commissioner Donelon said he felt this could be accomplished while concurrently meeting the NRRA requirements.

 

Arizona

In response, an Arizona Department of Insurance representative questioned Part IV of Florida’s SLIMA proposal, which provides for tax collection and allocation procedures.  The Arizona representative explained his opinion that, under SLIMA, a home state would be liable to other states for taxes unpaid by surplus lines brokers and would then be required to collect those taxes and that this could create a potential problem that would essentially authorize home states to distribute monies that have not yet been collected from a taxpayer.

 

Delaware

Based on her review of SLIMPACT, Anne Fletcher of the Delaware Department of Insurance said that the proposal’s language appeared to afford states the option to compact, which differs from NRRA requirements. 

Ms. Fletcher also expressed concern that SLIMPACT’s opting-out process is “very rigorous” for states, inasmuch as exiting the compact would require legislative action.   Instead, she suggested an “opt-in” process, which Commissioner Donelon said might be “cumbersome.”

Where brokers would be licensed was another concern that was discussed extensively.  “It shouldn’t be an issue because of reciprocity provisions in most states,” said Nicole Allen of the Council of Insurance Agents and Brokers.

 

New York

Calling SLIMA the “slimmer version of SLIMPACT,” Paul Zuckerman of the New York Insurance Department said that New York would be “more comfortable” with Florida’s proposal, since SLIMPACT delegates too much legislative authority.  

Mr. Zuckerman stated that New York  remains concerned about collecting taxes based upon home state rates and believes that a federal constitutional issue relating to equal protection might ensue under SLIMPACT’s provisions.   New York’s written comments state that “A court might construe such a compact as circumventing section 1 of Article III of the New York State Constitution, which prohibits the New York Legislature from delegating its law-making functions to other bodies, except to an agency or commission to administer law as enacted by the Legislature. Moreover, even were such a delegation constitutional, the Department would be troubled by such a broad delegation of legislative power to a compact.”

Further, New York states that, ” . . . unlike the case with (the International Fuel Tax Agreement), where states collect taxes for other states in purely a ministerial manner, the NRRA usurps authority to tax from any state other than a home state.”

It was noted that New York doesn’t allow life insurance in the surplus lines market, and that the NRRA only refers to property and casualty insurance.

 

Pennsylvania

Saying that her state would hope for a strengthened opt-in or opt-out provision as others have suggested, Pennsylvania Department of Revenue attorney Mary Durkson agreed that SLIMPACT’s rulemaking authority seems broad. 

 

Texas

Carrie Snyder of the Texas Comptroller of Public Accounts agreed that Florida has “made a good start” with its SLIMA proposal.   This was echoed by Sam Strickland of the Texas Department of Insurance, who stated that Texas would prefer an agreement that deals solely with premium tax collection. 

Texas is still researching a potential state constitutional issue relating to monies being collected by entities other than the Texas Department of Revenue and whether the state can contract with third parties to collect taxes on its behalf.

 

Virginia

Joanne Scott from the Virginia Bureau of Insurance reiterated her state’s support of SLIMPACT.

 

Washington

Jim Thompkins of the Washington State Office of the Insurance Commissioner urged the Task Force to expedite passage of a global approach, as opposed to narrowing the issues down to simply taxation.   States have raised issues that would be better resolved in another forum, he said. 

Commissioner Donelon reminded the Task Force that only six more weeks remain to conclude its work.

 

Interested Party Comments

American Insurance Association

Representing the American Insurance Association, Pamela Young said that her organization would like the opportunity to discuss NRRA’s insurer eligibility provisions.

 

NAPSLO/AAMGA

Representing the National Association of Professional Surplus Lines Offices and the American Association of Managing General Agents, Steve Stephan clarified that, as part of its mission, the Task Force is attempting to ensure a solution for states that have domestic surplus lines insurers.

He also addressed the aforementioned concerns relating to equal protection, explaining  a “rational basis” for doing something differently is the typical test of whether an issue presents constitutional concerns.

Mr. Stephan commented on Florida’s proposal, saying that “what needs to be in the compact is enough authority for (Florida) to drive uniformity.  The same language should be in every allocation formula.”

 

Conclusion

After discussion concluded, Commissioner Donelon said that John Bauer, the NAIC’s Chief Counsel of Regulatory Affairs, would draft a new proposal containing both enabling language and compacting language for presentation during the Task Force’s next conference call, which is scheduled for September 27, 2010. 

Written comments and further discussion on the new draft will be discussed during an October 4, 2010 call.

The September 20 meeting materials are attached for review.

 

 

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