Florida Surplus Lines Service Office Proposes Sole Technology and Administrative Operation of NIMA Clearinghouse
Aug 30, 2011
In a major development today, August 30, 2011, the Florida Surplus Lines Service Office (“FSLSO”) National Clearinghouse Committee (“Committee”) approved a proposal to provide both the technology platform and the operational and administrative services needed for the Nonadmitted Insurance Multi-State Agreement (“NIMA”) Clearinghouse.
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”).
Originally, the FSLSO’s proposal was to only provide the technology platform for the NIMA Clearinghouse, but the Committee revised that decision after Infinity Software (“Infinity”), which had expressed interest in providing the operational and administrative services, decided it could not adequately perform those services. Infinity has served as the FSLSO’s information technology services partner for years and the FSLSO had planned to negotiate a software licensing agreement with Infinity to facilitate the arrangement.
The FSLSO had to act quickly on the matter because the NIMA member states are expected to meet this afternoon and possibly choose a Clearinghouse provider, FSLSO Executive Director Gary Pullen said. The National Association of Insurance Commissioners (“NAIC”) has also expressed interest in running the NIMA Clearinghouse. At one point, the FSLSO considered partnering with the NAIC, but abandoned that idea after concerns arose over software access.
At today’s meeting, an Infinity spokesman told the Committee there wasn’t enough time to properly negotiate the licensing agreement, given the NIMA deadlines to create the Clearinghouse. Issues related to personnel, infrastructure and other resources also were problematic, he said.
With Infinity declining to provide the Clearinghouse’s operational services, the FSLSO had to come up with another plan, Mr. Pullen said.
“We came up with another concept. That idea is for us, the FSLSO, to offer our staff and our services as the . . . provider of the technology and operational services necessary for the Clearinghouse,” Mr. Pullen stated. “If we are going to move forward and hope the technology platform is adopted by the Clearinghouse, we will also have to be the provider of those Clearinghouse services. We will be the contracting party with the NIMA states and Infinity’s role would be as it has been – to assist us with the technology functions and responsibilities as well as the required programming.”
Under the new proposal, a software licensing agreement is no longer necessary, Mr. Pullen explained.
“We will be the contracting party and we will retain the rights and use of that license – the agreements would only be between the Service Office and the participating NIMA states,” Mr. Pullen said.
Another concern is whether the plan could affect the FSLSO’s tax-exempt status. An accountant who is reviewing the matter told the Committee he believes it is possible for the FSLSO’s status to remain intact.
“We have been talking through some potential options and structuring of contracts to mitigate any tax impacts,” the accountant told the Committee.
Committee member Dave Holcombe wondered if serving the NIMA Clearinghouse would be akin to adding another client to the FSLSO’s existing client list.
“Yes, you are right just from a structural standpoint. I think it’s analogous to say we are seeking another client and that client would be the NIMA states,” Mr. Pullen said.
After hearing the explanations, Committee members unanimously voted to move forward with informing the NIMA states of the FSLSO’s willingness to provide both the technology services and whatever else is necessary to operate the Clearinghouse, including administrative and operational services.
With no further business before the Committee, the meeting was adjourned.
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