The clock is ticking, and our patience is waning.
After years of jumping through scores of regulatory hoops, we finally have a law passed (after nearly a decade of trying, by the way) that is intended to make our lives easier when placing complicated multi-state surplus lines policies. But less than three months away from official implementation, we’re hearing that some are looking to thwart (intentionally or not) one of the central purposes of the Nonadmitted and Reinsurance Reform Act (NRRA). As is usually the case, a lost opportunity here would be a lost opportunity for insurance consumers around the country.
We’re looking at you, NAIC.
That patience thing I was talking about? Hear me out.
In an effort to streamline regulatory burden, enable insurers and brokers to comply with state rules, and provide much-needed insurance protections to consumers, Congress—not the NAIC—enacted the NRRA last July. The law gives sole regulatory authority over surplus lines transactions—including the authority to collect premium taxes—to the home state of the insured. It is a solution to a problem the NAIC, during the debate, admitted that it couldn’t fix. Now it has a long sought-after answer that works for everybody. Could the NAIC possibly drop the ball again? (Ahem, producer licensing?)
We want to be clear: The states are not required to do anything under NRRA with respect to surplus lines premium taxes.Tweet
Our member firms are trying to do business, and the inability of state regulators and legislators to adopt such a simple and desperately needed regulatory change is unfathomable. It’s not rocket science. My point is that the NRRA is smart. It will save time and money and prevent headaches. It’s got a ton of potential.
In enacting the NRRA, Congress sought to permit states to allocate surplus lines premium taxes among themselves pursuant to a single, uniform tax-sharing compact. More than one agreement or approach to sharing taxes would spoil one of the fundamental objectives of the NRRA: to provide a simpler, uniform tax reporting and payment process with a single payment, to the insured’s home state, for each transaction. We are troubled by this, and you should be, too.
Implementation of the NRRA’s surplus lines provisions offers the states a prime opportunity to reform surplus lines regulatory requirements and processes. Indeed, the law encourages the states to institute comprehensive reforms leading to uniform regulatory requirements across the country in all areas of surplus lines regulation—tax allocation and reporting, broker licensing, declinations, insurer eligibility and sophisticated consumer standards. But the NAIC took on only the tax allocation issue—fearful that some states might make out better than others.
So starting July 21, 100% of the premium taxes due on a surplus lines policy will be payable to only one state, the home state of the insured, in accordance with the laws of that state. Thereafter, it is up to that state to determine the extent to which it will share any of the surplus lines premium tax with other states.
We want to be clear: The states are not required to do anything under NRRA with respect to surplus lines premium taxes. The provisions of the law will take effect in July whether or not the states act or the NAIC urges them to adopt more than just the tax allocation process. But if a continued patchwork governing the allocation of surplus lines remains in place, regulators and licensees alike will face unrelenting confusion. Been there, done that. No, thank you. The clock is ticking. The protections are in place. We’re lobbing a softball at you, NAIC. Why can’t you knock this one out of the park?