NU Online News Service, Nov. 15, 3:48 p.m. EST
The battle with state insurance regulators over implementation of the surplus lines modernization law has begun as several insurance trade groups voiced strong objections to the National Association of Insurance Commissioners' proposal.
In a letter sent today to the head of the NAIC task force crafting an interstate agreement, six trade groups said the model law proposal "continues, by contract," the burdensome system Congress sought to eliminate through the new law.
Criticism by other interested parties also is expected to be voiced this week. There are reports that the authors of the law, "The Nonadmitted and Reinsurance Reform Act," incorporated in the Dodd-Frank financial services reform legislation, may lend their voice to the opposition to the proposed agreement.
The legislation dictates that in any multistate placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed--the "principal place of business" for the insured. Those rules include diligent search requirements (declinations), premium tax allocations and eligibility standards.
However, as outlined in a letter sent today, the trade groups say the proposed model legislation, the Nonadmitted Insurance Multi-State Agreement, or NIMA, "frustrates the spirit and letter" of the law.
The trade groups that signed the letter include the American Insurance Association; the American Association of Managing General Agents; The Excess Line Association of New York; the National Association of Mutual Insurance Companies; the National Association of Professional Surplus Lines Offices, Ltd.; and the Risk and Insurance Management Society Inc.
The letter was written to James Donelon, Louisiana insurance commissioner and head of the NAIC Surplus Lines Implementation Task Force.
It follows adoption of NIMA by the task force Oct. 26.
The letter said that the clear intent of the law was to create a streamlined tax system that involved uniform requirements, forms and procedures. The letter added, "NIMA not only fails to establish uniform requirements, forms and procedures, but instead continues, by contract, the burdensome system that Congress sought to eliminate with the" new law.
"NIMA will perpetuate unnecessary bureaucratic data reporting, with dozens of data elements and hundreds of state-specific tax nuances for every policy issued," the letter said.
The letter noted that the reason the NRRA was adopted was to replace this "dysfunctional system with a single-state payment system that included uniform requirements, forms and procedures."
NIMA, the letter said, "circumvents the NRRA and continues with the existing system through a contract between insurance commissioners."
The letter added that the proposed model law violates the NRRA requirement that "no state other than the home state...may require any premium tax payments for nonadmitted insurance," creates unnecessary and burdensome data reporting by brokers, and fails to create a clearinghouse infrastructure.
Moreover, the letter said, "the burden imposed is completely disproportionate to any legitimate regulatory need."
It noted that one large broker reported that the software system developed to remit surplus lines taxes involves more than 25,000 reporting rules.
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