National Association of Insurance Commissioners Surplus Lines Implementation Task Force Amends, Approves Nonadmitted Insurance Multistate Agreement (NIMA); NAIC Executive Committee To Vote December 16
Dec 9, 2010
After approving the “concept” of the Nonadmitted Insurance Multistate Agreement (“NIMA”) during its most recent meeting, the National Association of Insurance Commissioners (“NAIC”) Surplus Lines Implementation Task Force (“Task Force”) amended and approved NIMA yesterday, December 8, 2010. Meeting materials are attached for review.
The proposal now will be taken up by the NAIC Executive Committee and Plenary at a December 16 scheduled meeting.
Along with other comments on NIMA, the following letter to Task Force Chairman Jim Donelon was received from the National Association of Professional Surplus Lines Offices:
December 8, 2010
The Honorable James J. Donelon
Louisiana Department of Insurance
1702 N. Third Street
P.O. Box 94214
Baton Rouge, LA 70804-9214
Dear Commissioner Donelon:
We would like to submit brief comments regarding the Dec 8. call of the Surplus Lines Implementation task force. We are concerned that the NIMA contracts and the exhibits attached thereto have not been fully developed. Many industry objections, as well as regulator objections were ignored along the way that could impact the system. As presently conceived, NIMA still has a number of issues that need to be resolved.
One significant issue is the voting structure of the agreement. It is not apparent why the clearinghouse would be governed by a majority rule, yet the other functions of the compact are not also governed by majority rule. Many important functions are necessary for the compact to properly function, yet there is no indication of what the voting rules will be. The rule requiring a majority vote should be implemented for the clearinghouse allocation formula, the development of uniform forms, processes and procedures and the creation of data elements in the Exhibit 1. It is not clear what the policy reason would be for one decision to be governed by majority rule but not the other equally important decisions that must be made.
I would also suggest that the NIMA contract be more specific in requiring transaction data set forth in exhibit 1, once it is fully vetted. The NIMA agreement requires data “consistent” with exhibit 1, but would not appear to prohibit including dozens of other data elements. The agreement may also be inviting state deviations from exhibit 1. If the intent was to require transaction data “contained” in exhibit 1, it is not apparent from the language? The data elements must be consistent and NIMA does not appear to be mandating that the data elements be uniform.
Exhibit 1 was initially offered as an example and we are concerned that it was never fully vetted. Exhibit 1 could be streamlined by providing the broker a transaction number thereby eliminating the need to key in all the identification information for every policy. Exhibit 1 could also eliminate most of the data fields which identify the filing broker, the brokerage and the billing contact. I would also question the need to have both a policy number and the name of the insured since there are two pieces of data identifying the insured. It is also unclear why it is necessary to identify the insurer and the insurer’s NAIC code when this system is to collect taxes legally due from a surplus lines broker.
Yet another issue is whether a transaction “type” is necessary for a system that is only concerned with collecting taxes? Does it make any difference if it is new, renewal or adding a location? If the transaction generates taxable premium, the transaction type would not appear to impact the tax due. “Tax status” is also a questionable data field. If it is tax exempt is there a reason to be reporting it into a tax collection mechanism? One of the pieces of data that would appear to be essential – allocation by state – was not included in the form. It is also unclear how this form will be used and how it is consistent with the NRRA mandate that the broker file annual allocation reports.
We do not believe the data fields have been vetted to the extent necessary to include them in the final agreement. Tax returns should not be this complicated. A more simple system can be devised. Normally if there is a concern about the tax return filed by a taxpayer, the tax collector could either audit the taxpayer or request more information. We would urge you to begin work on a simpler tax return for surplus lines brokers.
We also believe the allocation formula was not vetted and should not be included in the agreement at this time. This is a critical part of the process and there was very little discussion about it. We do not believe that any broker should be required to create data for the sole purpose of remitting taxes. The Task Force never investigated the burden that would be caused by the allocation formula and we do not believe it should be included with the NIMA contract at this time. We would urge the task force or some other group to study the allocation method and determine if the most efficient way to collect a tax return from surplus lines brokers.
Thank you for the opportunity to comment.
Yours truly,
Steven P. Stephan
NIMA is designed to implement state-based solutions for addressing surplus lines reform mandated by the recently passed Non-admitted and Reinsurance Reform Act in Title V of H.R. 4173, which is also known as the Dodd-Frank Act of 2010.
Concurrently, the National Conference of Insurance Legislators has adopted and continues to gain support for a revised version of the Surplus Lines Insurance Multi-State Compliance Compact, which is also known as “SLIMPACT-Lite.”
Colodny Fass will continue to monitor this issue and provide updates as information becomes available