Richard Brown, an insurance lawyer in San Francisco who serves as a consultant and resource center to industry trade groups involved in the surplus-lines business, says the decision was no surprise.

A key reason clearinghouses aren't winning state support is that “there does not appear to be any appetite by non-NIMA states to share surplus-lines tax revenues,” Brown says.

This was borne out by data compiled by the National Association of Professional Surplus Lines Offices. According to the data, 32 states representing 72 percent of nationwide premium volume have no plans to participate in tax-sharing agreements.

“As the lack of economic benefits from participation in NIMA has become apparent over the last year, support in the regulatory community for multistate tax sharing has largely evaporated,” Brown says.

“It is only a matter of time before other NIMA participants withdraw,” he adds. “Home state taxation under the NRRA works; clearinghouse solutions do not.”

Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, adds, “We're now more than two years after the enactment of these provisions.” He says it is now clear “there is no momentum among the large states to participate in allocation regimes….”

Wood adds, “We do think it is a hopeful and gratifying sign that NIMA decided recently to adopt the Kentucky allocation system, which is far, far more user friendly for all the stakeholders—brokers, insurers, and clients.

“This has been an unnecessarily tortuous transition period,” Wood says. “I'm much more optimistic today than I was a year ago that the simplicity Congress sought in the NRRA will be achieved.”

Jack McDermott, a spokesman for the Florida Office of Insurance Regulation, acknowledged on behalf of McCarty that “creating a uniform national surplus lines taxation system is inevitably difficult, and does require significant compromise.”

He adds, “We remain hopeful that once the clearinghouse becomes operational on July 1 that other states will acknowledge the success of NIMA, and decide to join at a later date.”

The seven remaining participating members of NIMA are Florida, Louisiana, Nevada, Puerto Rico, South Dakota, Utah and Wyoming.