Florida Surplus Lines Service Office National Clearinghouse Committee Report: June 14, 2011

The Florida Surplus Lines Service Office (“FSLSO”) held a National Clearinghouse Committee (“Committee”) meeting today, June 14, 2011, to hear an update on FSLSO’s discussions with the National Association of Insurance Commissioners (“NAIC”) related to operation of the proposed Nonadmitted Insurance Multi-State Agreement (“NIMA”) Clearinghouse (“Clearinghouse”).

Effective on July 21, 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Nonadmitted and Reinsurance Reform Act (“NRRA”) authorizes states to establish agreements such as NIMA to allocate nonadmitted insurance premium taxes.

After the Committee approved the minutes from its May 31, 2011 meeting, FSLSO Executive Director Gary Pullen told Committee members he has not received a response from the NAIC regarding the FSLSO’s denial of a NAIC request to be trained on the software required to run the Clearinghouse, as well as to be the only party allowed to modify that software in the future.

The two entities have been discussing a potential partnership to deliver Clearinghouse operational services.  The FSLSO would prefer to provide only technical services to the Clearinghouse and had suggested that the NAIC should provide the operational and administrative duties.  The NAIC expressed interest, but wanted control over the software.

During his report, Mr. Pullen further expressed concern about some provisions related to data collection in the Clearinghouse Plan of Operation outline approved last week by the NAIC Surplus Lines Implementation Task Force.  He also is concerned with an access agreement the NAIC previously approved.

He called the access agreement “problematic,” because it includes insurance and bonding requirements, along with language about warranting the security of the Clearinghouse system against the breach of confidential information.

“You can’t warrant that crooks won’t be crooks,” Mr. Pullen stated.  “I can’t imagine that an attorney would ever read it and represent a party such as us and recommend or advise we enter into such an agreement.”

Mr. Pullen said the process is in a “holding pattern” while the NAIC tries to identify states with which it can sign tax-sharing agreements.

He said he will schedule another meeting when he has more to report.  With no further business before the Committee, the meeting was adjourned.

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