Florida Surplus Lines Service Office approves initial drafts of NIMA Clearinghouse services and software licensing agreements

At its meeting today, October 4, 2011, the Florida Surplus Lines Service Office (“FSLSO”) National Clearinghouse Committee (“Committee”) approved initial drafts of the software licensing and service operations agreements that will be required to operate the Nonadmitted Insurance Multi-State Agreement (“NIMA”) Clearinghouse. 

The draft versions of both contracts will be forwarded to representatives of the NIMA states for review, explained FSLSO Executive Director Gary Pullen. 

Committee members also amended the proposed Clearinghouse operations agreement to include a provision requiring the NIMA states to secure insurance.

Last week, in anticipation of signing a service contract with NIMA, the FSLSO Board of Governors (“Board”) approved a nearly $2 million budget for 2010 NIMA Clearinghouse operations and allocated $750,000 to its 2011 budget to cover associated Clearinghouse start-up costs.

Mr. Pullen noted that the software licensing agreement is proposed to run five years, while the administrative services agreement would run three years. 

“The primary reason is because the royalty fee is set at one quarter of one-tenth of one percent.  We felt we needed a longer period of time in order to recoup some of the development costs we have incurred in developing the system for use by the Clearinghouse.  That is why it’s five years,” Mr. Pullen pointed out.

Discussion on the administrative services agreement then ensued. 

One committee member wondered why the agreement stated that only one bank would be used.  Mr. Pullen explained that using multiple banks would be problematic due to the different lock box services of different financial institutions, thus requiring additional training and time. 

Committee member Dan O’Leary wanted to know where NIMA would get its own funds. 

Mr. Pullen explained that NIMA would not have its own money, but was obligated to ensure that the Clearinghouse received full payment from agents and policy holders. 

“That is where the funding will come from,” Mr. Pullen explained.  “It will be collected directly from policyholders and licensees.   We as a Clearinghouse will retain all of those funds.” 

In regard to change orders, the proposed contract includes a section that requires NIMA states to request in writing any changes to the data elements being collected or reported, Mr. Pullen stated. 

“We have to agree upon those changes before they are implemented as well as discuss how payment of those costs will be handled,” Mr. Pullen added.

Mr. O’Leary also wondered how the FSLSO would be indemnified. 

“NIMA will be an incorporated entity so it will have the right to sue or be sued,” said Jack Brennan, the FSLSO’s counsel.  “We could require it to put up some sort of bond or something.”

Committee members subsequently agreed to amend the proposed service agreement and include a requirement that NIMA secure some type of insurance. 

It was noted that NIMA states need to clearly understand the need for incorporation in order to enter into contracts. 

“I don’t think the NIMA states have contemplated the need to be incorporated.  That is one of the things we pushed and I think there are still some members who don’t understand that,” said Dennis Threadgill, an attorney with the Florida Office of Insurance Regulation. “Walking through the process, they have got to figure out what is going to be required and how they need to adjust their structure in order to deal with these issues.” 

In regard to updates to software, Mr. Pullen explained that upgrades would be covered by the FSLSO as part of the licensing agreement. 

If NIMA wants to add new functionalities, new reports and new data elements – things to be done at their request for their purposes – additional charges might be levied, Mr. Pullen said.

Before adjourning, Mr. O’Leary wanted to know if the FSLSO Board would have to give final approval on the contracts.  Mr. Pullen said they would, along with the NIMA principals. 

“There is going to be some negotiation between their principals and ours.  At some point we will come up with agreements that both parties agree to,” he said.

 With no further business before the Committee, the meeting was adjourned.

 

 

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