NAIC Surplus Lines Clearinghouse Plan of Operations Subgroup Report: February 24, 2011

 

The National Association of Insurance Commissioners (“NAIC”) Surplus Lines Implementation Task Force Clearinghouse Plan of Operation Subgroup (“Subgroup”) met on February 24, 2011 to continue its discussion on creating a plan of operation for a Clearinghouse that would be required by the proposed Nonadmitted Insurance Multi-State Agreement (“NIMA”). 

The proposed Clearinghouse would facilitate the collection and distribution of surplus lines taxes for those states that may adopt the NIMA, which is designed to address state-based surplus lines reform mandated by the Non-admitted and Reinsurance Reform Act (“NRRA”) in Title V of H.R. 4173, also known as the Dodd-Frank Act of 2010.

Discussion continued from the Subgroup’s February 17, 2011 meeting on an outline of draft topics for operation of the proposed Clearinghouse.  Additional comments from the State of Nevada were considered during the meeting.  Nevada’s comments are included with the attached meeting materials.

 

Licensing and account identification

Conversation on the licensing issue focused on Nevada’s suggestion that language pertaining to responsibility by the proposed Clearinghouse for verification of surplus lines producer and agency licenses in the respective home states through a producer database should be removed from the draft outline. 

Subgroup member Steve Parton stated that Florida, amongst other states, would need a home state license number to identify a particular agency.  Mr. Parton agreed with Nevada’s change. 

Jack Yanosky of the Pennsylvania Insurance Department said that there is no “true uniform coding” mechanism across states, and that any time a record goes from one state to another’s Producer Licensing Database, the National Producer Number follows the entity and its license.  All licenses and authorities held by an agency or producer, including a listing of every state license, are tied to the National Producer Number, he said.

According to a Kentucky Department of Insurance representative, Clearinghouse applicants would be provided with an access code and user identification number, under which all information can be stored and transmitted to states.

 

Recordkeeping

With regard to recordkeeping, discussion centered on the confidentiality of records that would be stored in the proposed Clearinghouse.  Ann Fletcher of the Delaware Department of Insurance said that, according to provisions of the NIMA, when a state contracts with the Clearinghouse, the contract should include terms on the confidentiality of information received, as well as provided by the Clearinghouse.  She went on to state her opinion that, under the NIMA, states can determine what confidentiality rules they want to have in place.

Responding to a comment by a representative from the New York State Department of Insurance that the provision in the draft pertaining to availability of records stored in the Clearinghouse should contain language stating that records are “available at any time” rather than “upon request,” Ms. Fletcher said that the Clearinghouse’s Web portal of information would only be accessible by those with a user ID, and that the usage of such should constitute a “request” for the information.  Therefore, that the language should stay as is.

 

Required Data Collection

Subgroup members offered comments on a redlined version of the “Outline for Clearinghouse Plan of Operation on Required Data Collection” that had been prepared by Kentucky and Nevada. 

A Texas Department of Insurance representative said that provisions of the NRRA and the NIMA identify the mission of the proposed Clearinghouse to be administrative, rather than regulatory in nature, as stated in the Outline, and that, according to the NRRA, only a home state collects tax.  Another member of the Subgroup responded that, under the NRRA, only a home state may require a tax.  Discussion ensued on the distinction between requiring a tax and collecting a tax. 

Members of the Subgroup then contemplated whether the proposed Clearinghouse should collect fees for state stamping offices and, if so, whether that could complicate things for the vendor eventually selected through the Request for Proposal (“RFP”) for the Clearinghouse operation. 

Ms. Fletcher wondered whether the vendor ultimately selected would be able to execute a separate transfer of funds to a different bank account in the same state.  Gennady Stolyarov of the Nevada Division of Insurance said, “Any online banking system should be able to do something like that.” 

Approximately 13 states have stamping offices, according to a Texas representative.  Subgroup members agreed that gathering opinions from those states would be productive.

 

Assessment and Receipt of Tax Payments

After some discussion, Subgroup members agreed that language in the draft plan of operations outline should clarify that the Clearinghouse will submit the allocated portion of quarterly tax payments to participating states at least 15 days subsequent to, rather than prior to the submission date required by the surplus lines brokers. 

The Kentucky representative asked whether the “reasonable transaction fees” referred to in the draft outline would be applied to each state affected by the transaction in the case of a multi-state account.  Mr. Parton replied that agents and brokers would be responsible for the fee, and that RFP respondents should suggest how they plan to handle the issue.

 

Proposed Audit Manual

Nevada submitted comments on the proposed NIMA audit manual, in which the State indicated that it considers premium-tax auditing to be the exclusive responsibility of individual states to which the taxes are allocated.

Bob Wagner of the Illinois Department of Insurance suggested waiting until after the Clearinghouse has been created to create an audit manual.  Several Subgroup members agreed.

 

Governance

The Subgroup then considered a proposed management or oversight committee of regulators who would oversee the functioning of the Clearinghouse. 

Questioning the need for an oversight committee, a representative from New York stated that the eventual Clearinghouse operations vendor would be under contract, and that legal remedies would exist in the event of a contract breach.  Another Subgroup member said that an oversight committee would be helpful for providing feedback should unanticipated issues arise after the Clearinghouse begins operating, and that a decision-making body would be preferable to having “50 different state bosses.”  

Mr. Parton added that “governance” might not be the most pertinent word to describe the proposed oversight committee’s would-be functions.

The Texas representative said, “It’s hard for me to fathom there not being any committee that maintains a relationship and oversees the functions of the Clearinghouse.” 

John Bauer, the NAIC’s Chief Counsel of Regulatory Affairs, said that the issue could be taken up by the Surplus Lines Implementation Task Force at the NAIC’s Spring Meeting at the end of March. 

 

The meeting was then adjourned.

 

 

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

 

 

To unsubscribe from this newsletter, please send an e-mail to bellis@cftlaw.com.