NAIC Surplus Lines Clearinghouse Plan of Operation Subgroup Report: May 17, 2011

 

The National Association of Insurance Commissioners (“NAIC”) Surplus Lines Implementation Task Force Clearinghouse Plan of Operation Subgroup (“Subgroup”) met via teleconference today, May 17, 2011, to review a draft plan of operation for the Nonadmitted Insurance Multi-State Agreement (“NIMA”) and discuss outstanding issues related to its proposed Clearinghouse (“Clearinghouse”). 

The NIMA Clearinghouse would be responsible for the receipt, allocation and dispersion of multi-state premium taxes pursuant to surplus lines-related reform provisions in the Nonadmitted and Reinsurance Reform Act of 2010. 

The agenda and meeting materials are attached.

Regulatory representatives from 10 states participated in the discussion, including Alaska, Delaware, Florida, Indiana, Illinois, Nevada, New York, South Dakota, Texas and Utah.

Alaska Insurance Director and Subgroup Chairman Linda S. Hall led the discussion, first seeking input and comment on four unresolved issues.

The first issue focused on whether or not a state would be able to terminate its relationship with the Clearinghouse and still remain part of NIMA.  It was also asked whether every NIMA member would belong to the same Clearinghouse.

According to NAIC General Counsel John Bauer, a state that participates in NIMA in effect contemplates the entry into an agreement with the Clearinghouse.  It would follow that all participants would be part of the same Clearinghouse, Mr. Bauer said.

“We wanted to make sure we are all on the same sheet of music; if you join NIMA, there’s a separate Clearinghouse agreement, but we are all going to be working for the same Clearinghouse, the same system,” said one regulatory representative.  “We just wanted to make sure everyone else is thinking along the same lines.”

Added Chairman Hall:  “I can’t imagine we would allow a state to contemplate they don’t want to use the same Clearinghouse.  It would defeat what we were trying to do if we allowed that.”  If a change needed to be made, it would be a Plan of Operation task and all participating states would have to agree, she said.

The second issue focused on whether the Plan of Operation would allow the Clearinghouse and participating states to propose mutually acceptable changes to the scope or work, or make amendments if required by state or federal law.

Chairman Hall pointed out that the Plan of Operation’s governance section provides ways to amend it, as well as ways to propose changes to NIMA.  She said the governance section provides much flexibility.

“It would be up to the group to propose changes they wanted to make,” Chairman Hall said.  “You can’t have a static operation that you never make changes to if those changes are required.”

Cindy Donovan of Indiana said she also felt the existing agreement had adequate built-in flexibility to allow such changes.

“The draft Clearinghouse access agreement does have an optional provision for amendment or modification to the access agreement itself.  It is very much in line with the NIMA provisions for amendment in the sense that the access agreement can be amended with the consent of the Clearinghouse and two-thirds of the participating states,” said Gennady Stolyarov of Nevada.  He requested that an optional provision be made part of the actual access agreement.

The third issue centered on the how the performance of the Clearinghouse might be guaranteed financially, such as through an errors and omissions policy, or a performance bond.  Mr. Stolyarov said a performance bond is unnecessary and may be a financial burden on the Clearinghouse.  He favored an errors and omissions policy tailored to information technology-related risk.  He suggested it should be a contractual requirement of the NIMA access agreement, but said he was open to other ideas.

Stan Strickland of Texas favored insurance and a performance bond, since each affords different coverages. 

The Florida representative expressed support for a performance bond, if reasonably priced.  His reason?  Money will be passing through various Clearinghouse accounts and some state laws may require a performance bond as a result, he said.  He also wondered if some Clearinghouse employees might need to be covered by a fidelity bond.

It was agreed that a large vendor would likely have such coverages in place and should provide information on what coverages it would provide.  The minimum coverages could be included in the Request for Proposal, and should be broader than just a performance bond, Chairman Hall stated.

The fourth issue related to adopting NIMA’s definitions by reference.  Subgroup members agreed it was sufficient, with little discussion.

The Subgroup then reviewed the Outline for the Clearinghouse Plan of Operation section by section. 

Nevada’s Division of Insurance submitted a seven-page memorandum and list of concerns related to the Plan of Operation–some quite critical.   In the memorandum, Nevada said the governance structure established by the Plan of Operation is “beginning to resemble that of the SLIMPACT Compact Commission.”

“Moving away from the latter structure was the original intent of NIMA,” wrote Mr. Stolyarov in the May 17 memorandum. “Nevada considers it important not to create an entity that could be construed as an interstate regulatory body with the power to supersede functions of individual Participating States.”

At the Subgroup meeting, Mr. Stolyarov also requested a section authorizing the Clearinghouse to verify agency licensure be stricken from the Plan of Operation.  Mr. Strickland of Texas agreed that section should be removed.

Sections on the Powers and Duties of the Board of Directors, account identification, recordkeeping, data collection, accounting requirements, reporting requirements, the assessment and receipt of tax payments, and allocation stirred little discussion.

Chairman Hall requested that all comments and substantive suggestions for changes in the Plan of Operation be submitted by May 24, 2011 so a final draft can be issued after Memorial Day.

With no further business before the Subgroup, 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.