The law went into effect July 21, 2111, and established the insured's home state as the only state with jurisdiction over multi-state surplus-lines transactions and the only state that can require a tax to be paid by the broker.

NIMA and the Surplus Lines Multistate Compliance Compact, or SLIMPACT, were created as rival compacts last year as states worked to implement the new law.

NIMA was supported by the National Association of Insurance Commissioners; SLIMPACT was created because most industry officials said NIMA did not constitute congressional intent in enacting the NRRA.

NIMA is set to start up July 1, but SLIMPACT is not yet operational and cannot be operational until July 1, 2013, at the earliest, and only if a tenth state joins.

The “Kentucky Proposal” NIMA has adopted excludes the majority of casualty surplus lines premium from multi-state allocation. Therefore, the home state continues to collect most surplus-lines tax for casualty insurance unless a casualty policy is rated on a state or location-specific basis.

However, Rick Brown, an insurance-regulatory lawyer who practices in San Francisco, cautions that NIMA adoption of the Kentucky system is unlikely to persuade additional states that the perceived economic benefits of a clearinghouse outweigh the associated costs.

“NIMA is to be congratulated for adopting a workable premium-allocation methodology,” Brown says.

However, he adds that “there does not appear to be any appetite by non-NIMA states to share surplus-lines-tax revenues.

According to statistics cited at the March 24 National Association of Professional Surplus Lines Offices mid-year Leadership Forum in Scottsdale, Ariz., states representing 63 percent of nationwide premium volume have no plans to participate in tax-sharing agreements.

Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, agreed with Brown, stating, “The Kentucky allocation formula is much better, so we're happy to hear of the action.”

He adds, “We remain concerned that there is no critical mass of premiums that will flow through NIMA, or SLIMPACT, for that matter, and we find it highly unlikely at this stage that many large states beyond Florida are likely to join in such mechanisms.”

NIMA is being run by the Florida Surplus Lines Service Office. In announcing the decision to adopt the Kentucky method, Florida Insurance Commissioner Kevin McCarty said it was done “in the spirit of compromise.”

He says, “NIMA members have once again worked together to integrate the best ideas of its members to create a streamlined process consistent with the provisions of Dodd-Frank.”

McCarty says the proposal is supported by NAPSLO and states that joined SLIMPACT, as well as several trade and industry groups.

NAPSLO Executive Director Brady Kelley says, “NAPSLO advocated the allocation methodology proposed by Kentucky with the goal of moving toward a uniform solution for those states pursuing tax sharing. We will continue our work on the efficient and uniform reporting and payment of taxes to the home state.”