National Association of Insurance Commissioners Surplus Lines Task Force Offers Nonadmitted Insurance Multi-State Agreement (NIMA) Model Advisory Bulletin for Comment by May 12, 2011

 

During an April 21, 2011 teleconference, the National Association of Insurance of Insurance Commissioners (“NAIC”) Surplus Lines Task Force (“Task Force”) approved for a 21-day written comment period a model advisory bulletin designed to outline nationwide regulatory changes that will affect surplus lines brokers placing business in various states pursuant to the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). 

A copy of the draft advisory bulletin is attached, along with the meeting agenda and interested party comments.   Regulators and interested parties are invited to submit written comments to the NAIC on the draft bulletin by May 12, 2011.

Incorporated into the Dodd-Frank Wall Street Reform and Consumer Protection Act, the NRRA provides that only an insured’s “Home State” may require a premium tax payment for nonadmitted insurance.  Effective July 21, 2011, it also authorizes states to establish procedures to allocate nonadmitted insurance premium taxes among themselves.

Task Force member regulators, some of  whom were represented by designees at the meeting, were present from the following states:  Louisiana, Alaska, Delaware, Florida, Louisiana Illinois, Indiana, Nevada, New York, Oklahoma, Pennsylvania, South Dakota, Texas, Utah and Virginia.

Louisiana Insurance Commissioner Jim Donelon, who also serves as Task Force Chairman, warned the attendant regulators that, as of April 20, only three months are left before the NRRA’s July 21 effective date.  Although the Task Force has completed a substantial amount of work, he said, even more remains.   The purpose of Task Force meeting, he explained, was to assess the status of those accomplishments and what should be done from this point on.

To recap state-by-state NRRA-related legislation to date, NAIC Chief Counsel for Regulatory Affairs John Bauer reviewed which states are progressing on the Nonadmitted Insurance Multi-State Agreement  (“NIMA”), which are pursuing the Surplus Lines Insurance Multi-State Compliance Compact (“SLIMPACT”), which states have simply passed general NRRA-related legislation that specifies neither NIMA nor SLIMPACT, and which states have pending, simultaneously competing NIMA/SLIMPACT bills.

According to Mr. Bauer, among states with NIMA-based legislation:

• Five have approved bills that provide for an agreement or compact.
• Six have similar bills that have passed their respective legislatures and are awaiting the governor’s signature.
• Three have passed such bills in just one chamber of their legislatures.
• Eight have bills pending that have not passed either house of their legislatures.

Among states with SLIMPACT-based legislation:

• Two have passed bills that have been signed by their governors.
• One did not pass SLIMPACT legislation per se, but enacted legislation authorizing the state to enter into SLIMPACT.
• Two states’ legislatures have approved bills that are awaiting their governors’ signature.
• Two states have bills pending in their legislatures.

Four states have situations in which simultaneous NIMA and SLIMPACT bills have been filed. 

Mr. Bauer explained that some states are taking the “old route” to NRRA compliance by having filed legislation that doesn’t include a NIMA or SLIMPACT-specific authority.  Further, approximately 10 states presently do not have any pending legislation, but the NAIC is monitoring these to determine the direction in which they may be headed.

Mr. Bauer explained that SLIMPACT becomes effective when two states have passed the enabling legislation, but becomes operational when it has secured the participation of 10 states, or 40 percent of the market premium share.  Under SLIMPACT, states can be designated as “compacting” or “contracting” states.

An Oklahoma representative asked what this means for the establishment of single or multiple clearinghouses.  He said he was under the impression that, according to the NRRA, only one entity would be disbursing the collected taxes.

Chairman Donelon pointed out that, regardless of whether SLIMPACT reaches its 10-state market share or 40 percent premium volume threshold, if even 10 states join and set up a clearinghouse similar to that prescribed by NIMA, ultimately, at least two dozen states will likely utilize the NIMA agreement for their multi-state products.  If another dozen join SLIMPACT and the rest simply “continue to do their own thing one state at a time,” he thinks that NIMA has the potential for growing beyond July of 2011, “once it’s up and running, and available to states on a user-friendly basis.”

Task Force members agreed that the “unanswered question” is what would happen if some states joined both NIMA and SLIMPACT.  “That answer is anyone’s guess,” Commissioner Donelon admitted.

A Connecticut Insurance Department representative asked about the status of NRRA legislation in large states such as California, New York and Florida.  Commissioner Donelon said that these states were considering general legislation that would enable entry into an “interstate agreement.”

The New York representative offered that his state was one of those that took a general path in approaching the issue, simply because its budget needed to be finalized.  “It doesn’t mean New York wouldn’t consider another approach,” he said.

In Texas, SLIMPACT is pending, but existing laws there already authorize the state comptroller to enter into an interstate agreement.  Therefore, Texas will consider both options.

Representing the Florida Office of Insurance Regulation, Steve Parton explained that pending legislation is proceeding through both the Florida House and Senate. 

Chairman Donelon then recognized Alaska Insurance Director Linda Hall for her report on the Surplus Lines Implementation Clearinghouse Plan of Operation Subgroup (“Subgroup”).

Alaska’s recently concluded 2011 Legislative Session yielded passage of a bill that would allow the State to join “a NIMA-like operation,” Director Hall said.  

The Subgroup, which consisted of representatives from 10 states that also are Task Force members, was charged with drafting to draft a plan of operation or procedures manual to govern the functions of the proposed NIMA clearinghouse.  Ultimately, Director Hall said, the content of such a plan will be one for those states that join NIMA to work out among themselves together with a clearinghouse vendor.

Subgroup members, who reviewed various surplus lines-related documents, together with the International Fuel Tax Agreement in order to gain a benchmark upon which to model the NIMA clearinghouse plan of operation, also reviewed other topics such as software, auditing and applicable governance principles.

In February, the Subgroup’s focus shifted to creating a clearinghouse vendor request for proposal.  This project then metamorphosed into a request for information that was released in March 2011.  Since completing this project, the Subgroup has not reconvened, since ultimately, the plan of operation must be worked out among the NIMA states and clearinghouse vendor.

“Our work will provide the NIMA states with a head start to complete their NIMA operation,” she said, adding that the Task Force must decide whether the Subgroup should be reconvened, or whether the NAIC staff members should gather the plan of operation information assembled to date and transfer it to the NIMA states for completion.

The question of when to transfer the plan of operation information as various states pass NRRA legislation prompted extensive discussion among Subgroup members. Ostensively, they mused, those states that pass NIMA legislation would want to join the decisionmaking process as  the plan of operation takes shape.  According to Chairman Donelon, that process could begin as early as May 1.

Nicole Allen, a representative from the Council of Insurance Agents and Brokers, said she hoped that during the development of the NIMA plan of operation, there would still be some way for the insurance industry members to provide comments and expertise.  “This needs to be workable for the industry as well as the states,” she reminded.

Chairman Donelon remarked that he has been approached by industry representatives about “tweaking the industry process along the lines of med mal” and in other areas.   “We are all open to modification,” he said.

David Kodama, senior director of research and policy analysis for the Property Casualty Insurers Association of America, recalled that several states’ insurance departments had published bulletins outlining regulators’ expectations of insurers in regard to NRRA legislation in their particular states.   Describing these bulletins as “extremely valuable,” Mr. Kodama said they provided legislative detail on how individual states complied with the NRRA in order to mitigate potential confusion on how state law meshes with the federal law.   He asked Task Force members whether they would agree to provide guidance and direction so other states could individually publish such bulletins.  Chairman Donelon expressed his openness to the idea.

Chairman Donelon then introduced Louisiana Insurance Department attorney Tom Travis, who reported on his work with other states’ regulatory attorneys in reviewing the draft model advisory bulletin, as well as the NIMA agreement for language consistency and other legal concerns.

Mr. Travis pointed out that contracting or participating states would have to determine what type of insurance and financial responsibility requirements are appropriate for the clearinghouse.   One option would be to have an errors and omissions policy, while the other would be for the clearinghouse to post a performance bond with each state.

After further discussion, Chairman Donelon suggested that the NAIC continue its work on refining the plan of operation with the intent of transitioning it to the NIMA states in the future.  He further directed Mr. Bauer and the NAIC staff to communicate with those states that are ready to sign the NIMA agreement, since, once the signed agreement is in place—even among only a handful of states–“it will give us a place to send our knowledge, work and folks . . . even for those states that may ultimately go to SLIMPACT,” he said.

The Task Force then approved the draft model NIMA advisory bulletin to be issued for regulator and interested party comment by May 12, 2011.  A copy of the draft bulletin is attached for review.

A brief overview of work done by the NIMA Clearinghouse vendor Request for Proposal Subgroup was given.  Over 700 hits had been registered on the request for information document, which was posted to the NAIC Web site on March 18.

Subsequently, interested respondents were given an opportunity to make a presentation to regulators during the NAIC’s 2011 Spring National Meeting.  The only two respondents for either the written or oral presentation were the Florida Surplus Lines Service Office and the NAIC, itself.  More responses are expected once the actual RFP is issued.  Even so, Chairman Donelon added, the decisions about a clearinghouse vendor will need to be made by the NIMA states.

After additional discussion, the meeting then was adjourned.

 

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