With the looming prospect of federal legislation that would severely impact its members, the National Association of Professional Surplus Lines Offices, Ltd., hired a former lobbyist for the Independent Insurance Agents & Brokers of America to represent NAPSLO's interest in Washington earlier this year.

According to that lobbyist--Maria Berthoud, vice president of B&D Sagamore, a subsidiary of the Washington-based law firm Baker & Daniels--one of the first items on the agenda of the Senate Banking Committee in 2006 could significantly change the playing field for the surplus lines industry.

"From intelligence I've been garnering on the hill" while delivering messages to lawmakers about what NAPSLO is, "I found out there is a bill that is going to be introduced in the Senate...before the SMART bill that [senators] are calling Optional Federal Charter legislation," Ms. Berthoud reported. The OFC legislation--called the National Insurance Act--is set to be introduced by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D, she said.

The bill, if it ever passed, "would dramatically impact surplus lines--if not eliminate the need for surplus lines," she said--"because national insurers would have the same ability that surplus lines insurers have right now."

NAPSLO prefers legislation that would set forth federal standards for state regulation, like the SMART, or State Modernization and Regulatory Transparency Act being drafted in the House.

In a memo to NAPSLO Executive Director Richard Bouhan dated July 8 (available on NAPSLO's Web site), Ms. Berthoud explained that the National Insurance Act draft, which she expects "to be dropped in the Senate at the beginning of 2006," would allow standard insurers to write in every state by only meeting the requirements of one regulatory entity. That "would give those insurers the qualities of a surplus lines insurer," she said in the memo.

The ability to write in all states would also increase the number of licensed insurers in each state, she wrote. That, in turn, "may reduce the need for a buyer to seek coverage from an unlicensed insurer, which would have a severely negative impact on the surplus lines industry."

The memo went on to explain that one potentially beneficial provision of the National Insurance Act allows state-chartered insurers to be affiliated with national insurers under a holding company system.

This could "allow surplus lines insurers to remain viable," she wrote, explaining that it would permit a structure that includes a state-chartered surplus lines insurer (which would remain free of rate and form regulation under state law) and an affiliated national insurer, subject to some federal rate and form regulations but able to write coverage in each state while only meeting one regulator's requirements.

Ms. Berthoud reviewed the history of the federal government's interest in insurance--and catalysts for action--at a legislative breakfast conference held during the NAPSLO annual meeting here.

She also delivered a good news/bad news message, suggesting that SMART is "truly the only vehicle that has a chance of passage. Otherwise, we will be looking at federal regulation."

The session began with Mr. Bouhan introducing Ms. Berthoud and a short video titled "Insuring Our Freedom."

"The surplus lines market will not be the focus of any [federal] legislation, but a matter of adding or dropping a few words could have impact on this market," the video narrator ominously announced.

With that in mind, NAPSLO has a specific message for federal lawmakers, Mr. Bouhan said, noting that members want to see four points included in any legislation:

o A statement that the surplus lines market is free of rate and form regulation.

o Clarification and possible expansion of an "automatic export" provision, which is essentially a waiver of the diligent search provision for sophisticated buyers. Currently two categories of exempt buyers are defined, but only one has an automatic export option.

o A provision spelling out simpler tax processes allowing surplus lines brokers to remit state premium taxes on multistate risks to one state--the insured's home state,

o Expansion of one-state compliance on multistate risks from sophisticated insureds to all commercial insureds.

At one point, Ms. Berthoud suggested that NAPSLO and the IIABA were virtually alone in their support of a middle-ground SMART bill, with the American Insurance Association, the Council of Insurance Agents and Brokers, and the American Council of Life Insurers supporting an OFC framework.

NAPSLO has also remained alone in opposing the extension of the Terrorism Risk Insurance Act beyond its scheduled Dec. 31 expiration, although the group has clarified a position articulated last year when NAPSLO leaders cited the high cost of documenting rejections of terrorism coverage.

"We were against the extension of TRIA in the present form," Mr. Bouhan told NU at this year's meeting. "We still oppose the extension of TRIA, but we recognize there are areas such as workers' comp, the life insurance area, and maybe some trophy property areas where reinsurance is sparse and a back-up would be necessary."

"We'd also like to see that be voluntary," Mr. Bouhan added. "We really don't think highly of TRIA."

An optional federal charter bill, if it ever passed, "would dramatically impact surplus lines--if not eliminate the need for surplus lines--because national insurers would have the same ability that surplus lines insurers have right now," according to Maria Berthoud, NAPSLO's lobbyist.