SLIMPACT Supporters Criticize Florida’s Support For NIMA

The following article was published in PropertyCasualty 360º on June 16, 2011:

 

SLIMPACT supporters criticize Florida’s support for NIMA

By Arthur D. Postal

Florida’s way of implementing federal surplus lines legislation is coming under heavy fire from industry trade groups.

The Florida Office of Insurance Regulation has announced it entered into the multi-agency Non-admitted Insurance Multi-State Agreement (NIMA) to comply with the July 21 deadline for implementation of the Non-admitted and Reinsurance Reform Act of 2010—a component of the Dodd-Frank financial services reform bill.

Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices (NAPSLO), says Florida’s decision to go with NIMA reinstates the type of tax system that the Dodd-Frank bill tried to eliminate.

“Instead of relying upon the home-state tax rate, NIMA attempts to impose the taxes, fees and assessments of multiple states for a single policy based upon dozens of different allocation formulas such as sales, receipts, employees, etc.,” Bouhan says.

“NIMA is basically the same system that Congress was seeking to reform,” he adds.

Bouhan also says Florida’s decision to sign the contract “doesn’t mean that the NIMA clearinghouse will become operational or that states will ultimately share revenue.”

He says it is “not clear why any state, much less a large state, would stay in the NIMA system if it would cause a loss of revenue to the state.”

If the NIMA clearinghouse becomes operational, some states will lose tax revenue and some states will gain revenue, Bouhan explains.

Industry trade groups, including NAPSLO, the American Insurance Association (AIA), and the Property Casualty Insurers Association of America (PCI), are supporting an alternative compact called SLIMPACT-Lite, or Surplus Lines Insurance Multi-State Compliance Compact, which is promoted by state legislators, including the National Conference of Insurance Legislators (NCOIL).

Other groups supporting SLIMPACT-Lite include the National Council of State Legislatures (NCSL) and the Council of State Governments.

SLIMPACT is nearing the support of the 10 states needed to begin implementation of the program.

Reacting to Florida’s announcement, Willem O. Rijksen, vice president of public affairs for AIA says, “AIA continues to be concerned with NIMA’s shortcomings, including unnecessary and burdensome reporting requirements as well as the ability under the NIMA structure to maintain data confidentiality.”

Echoing the sentiment, William Stander, assistant vice president of state government relations for PCI, says he remains “concerned that the NIMA approach does not address some important streamlining requirements of the Dodd-Frank Act, such as uniform surplus lines eligibility requirements and exemptions for certain commercial purchasers.”

Under the new federal law, states that fail to adopt some means of tax allocation system by the July 21 deadline will be subject to a single state taxation that allows the home state to retain 100 percent of the tax on the gross premium effective July 21.

Five states—New York, California, Texas, Florida and Louisiana—comprise approximately 55.4 percent of the nation’s non-admitted revenues. Without the agreement, Florida stood to lose an estimated $15 to $20 million per year in premium tax.

“Florida and the other participating states are leading the nation in the modernization of the reporting process for surplus lines premium,” says Florida Insurance Commissioner Kevin McCarty. “I would especially like to recognize the National Association of Insurance Commissioners (NAIC) for their leadership with the task force and in creating this new agreement.”

The OIR notes, “Florida, Mississippi and Hawaii are the lead states in forming this agreement but other states are expected to join.”

Bouhan says that among potential obstacles to the long-term viability of the NIMA clearinghouse is that some states will avoid the NIMA system if their policyholders experience a tax increase after they join NIMA.

For example, he says, joining the NIMA tax compact could represent a tax increase for some Hawaiian policyholders because they would face paying the higher assessments charged by Florida and Mississippi. Many states are simply unwilling to impose a tax increase of any size.

“Many issues need to be resolved before states could begin sharing revenue,” says Bouhan, adding that the creation of a clearinghouse for the states to share tax revenue will require compliance with state procurement laws.

“In addition, NAPSLO is concerned that NIMA imposes a burdensome data reporting system on policyholders and brokers, since much of the required data would have to be created outside of the normal course of business,” Bouhan adds.