NCOIL Urges NAIC to Adopt SLIMPACT for Dodd-Frank Surplus Lines Reform Implementation

 

 

In advance of a September 13, 2010 National Association of Insurance Commissiners (“NAIC”) teleconference on surplus lines reform implementation, the National Conference of Insurance Legislators (“NCOIL”) urged the use of the proposed Surplus Lines Insurance Multi-State Compliance Contract (“SLIMPACT”) as applicable to the Dodd-Frank Wall Street Reform and Consumer Protection Act’s surplus lines provisions.

NCOIL’s news release on the issue, which contains a hyperlink to a letter from NCOIL President U.S. Representative Robert Damron (KY) to NAIC Surplus Lines Task Force Chair, Louisiana Insurance Commissioner Jim Donelon, is reprinted below.

 

About SLIMPACT

SLIMPACT, an interstate compact, was drafted with input from insurance professionals representing various state regulators, tax officials, legislators, stamping offices, brokers and trade associations.  Its fundamental provisions are designed to clarify the law and ease regulatory burdens on excess and surplus  (“E&S”) brokers when placing multistate risks and allow each compacting state to collect taxes on all nonadmitted risks where risk exposures are present in the compacting state(s).  Over time, this is expected to save E&S brokers substantial frictional costs associated with current efforts to comply and pay state by state taxes on each multistate risk the broker places.

Under SLIMPACT, E&S brokers would be required to comply and file E&S transactions and data only in the home state of the insured on any one multistate risk.  An E&S broker would need to be licensed only in the insured’s home state when placing a multistate risk.

SLIMPACT also would provide authority for compacting states to agree on Uniform Standards to make compliance requirements more uniform among the compacting states when two thirds of the compacting states agree on a particular uniform standard.

SLIMPACT would entitle each compacting state to have a “member” on the Compact Commission.  A “member” could consist of more than one representative, however, the “member” gets one single vote.  Therefore, each compacting state gets an equal vote.

SLIMPACT’s Compact Commission is empowered to accomplish a number of tasks, which include:

• Creating a clearinghouse to receive transaction and tax data which would be used periodically to report what each state is owed by each broker and vice versa
• Adopting uniform tax allocation formulas to be used by each compact state. Each state would be able to charge its own tax rate to the portion of the risk located in such state.
• Adopting standards to create more uniform regulation across participating compact states when two-thirds of the member states agree to such standards
• Other general authority to budget, hire staff, charge fees necessary to operate the Compact and clearinghouse
• Electing a management committee to implement the policies adopted by the commission and run the day-to-day affairs of the clearinghouse.  The management committee’s selection criteria is weighted in favor of compacting states with large E&S premium volume and favors the selection of stamping office executives who deal day to day with data collection and tax reporting laws.

Under SLIMPACT, when placing any given multistate risk, E&S brokers would only have to be licensed in the state that is the home state of the insured.  For example:   An E&S broker has 60 multistate risks, however, all are Texas home-stated risks based on the Compact definition of home state.  The E&S broker would need to be licensed only in Texas.  If four of those 60 multistate risks were home-stated in California and the rest in Texas, the E&S broker would need an E&S license in California for the four risks home-stated there.

As provided by SLIMPACT, an E&S broker would report each transaction to the home state of the insured.  A Web-based spreadsheet and calculator will be available by which the broker can report each state’s allocation (payroll by state for instance) and obtain a tax billing sheet by which it can bill the insured.  The data is transferred through the state, stamping office or state agency to the clearinghouse.

Although the E&S broker would need to be licensed only in the home state of any given insured, the E&S brokers would be legally responsible for paying the surplus line taxes due to each compacting state.  Compacting states would be required to set tax payment dates annually, semiannually or quarterly using only the following dates March 1, June 1, September 1 and December 1.

Compacting states would require insureds that acquire coverage without a placing broker, to complete the tax allocation schedule, report and pay taxes state by state.  Allocation data would be reported by the state to the clearinghouse.

SLIMPACT’s Compact Commission would become effective upon the earlier of the Compact’s adoption by ten states or states representing 40 percent of the surplus lines U.S. market share.  The clearinghouse and tax allocation implementation would occur on the first January 1 or July 1 following the first anniversary of the date the Compact Commission becomes effective.

 

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

 

(The following news release is reprinted from NCOIL)

 

NCOIL PRESSES NAIC GROUP ON SLIMPACT DRAFT

Washington, DC, September 8, 2010 -NCOIL President Rep. Robert Damron (KY) last week urged an NAIC Surplus Lines Implementation Task Force to consider using a proposed Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT), in whole or in part, to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act’s surplus lines provisions.  In a September 2 letter to Task Force Chair Commissioner James Donelon (LA), Rep. Damron reiterated NCOIL support for SLIMPACT, indicated a willingness to modify SLIMPACT to address any NAIC misgivings, and highlighted an upcoming State Leader Summit on financial reform. 

As the NAIC Task Force opened a comment window in advance of its Monday, September 13, conference call, Rep. Damron wrote:

Rather than discussing individual issues cited in draft Guiding Principles for Surplus Lines Reform Implementation, the Task Force should debate the already developed SLIMPACT, which encompasses major issues reflected in your discussion draft, including the collection and allocation of surplus lines taxes.   

In relating the history of SLIMPACT, Rep. Damron wrote:

SLIMPACT has been extensively debated for the past several years by insurance regulators, legislators, and industry representatives.  The proposal was developed over the course of several years during open meetings held at NAIC national meetings.  NCOIL has supported the SLIMPACT concept since 2007 and continues to believe that it is the most appropriate solution to streamline surplus lines taxation issues.

Noting that NCOIL legislators had recently asked the NAIC to “indicate which provisions in the SLIMPACT proposal that they cannot support,” Rep. Damron said that NCOIL is “willing to work with the NAIC and others to modify SLIMPACT, if necessary, so that we can expedite guidance to the states.” 

Rep. Damron cited an upcoming State Leader Summit: Working Session on Financial Modernization as a venue to discuss surplus lines reform, among other pressing financial topics.  He said that NCOIL had “invited state leaders to participate in the session that we hope will lead to consensus support for certain reform initiatives.”    

The State Leader Summit will take place on Friday, November 19, from 8:00 to 11:30 a.m.  It is being held in conjunction with the November 18 through 21 NCOIL Annual Meeting in Austin, Texas. 

Presidents and/or Chairs of the Council of State Governments (CSG), National Association of Attorneys General (NAAG), NAIC, North American Securities Administrators Association (NASAA), National Conference of State Legislatures (NCSL), and National Governors Association (NGA) have been invited to participate in the Summit.

NCOIL is an organization of state legislators whose main area of public policy interest is insurance legislation and regulation.  Most legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country.  More information is available at www.ncoil.org.