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By DAN REYNOLDS, senior editor of Risk & Insurance®

Legislation now moving through the U.S. Congress, should it become law, stands a very good chance of making the excess-and-surplus insurance lines market more efficient, according to risk management and broker trade groups.

Roger Sevigny, president of the National Association of Insurance Commissioners, said the bill bypasses efforts by regulators and consumers to develop a broader framework to modernize the process of buying and selling reinsurance.

"We have also been clear that we do not support the reinsurance provisions of the legislation, as state regulators, state legislators, insurers, reinsurers and consumer groups have invested a tremendous amount of time and energy in debating and developing a broader reinsurance modernization proposal to present to the Congress for consideration," said Sevigny, in an e-mailed statement.

The bill, H.R. 2571, passed the U.S. House Sept. 9. unanimously by a voice vote and now heads to the U.S. Senate, where it was introduced by a bipartisan group of Senators on June 25.

Also known as the Nonadmitted and Reinsurance Reform Act of 2009, the bill declares that only an insured's home state may require a surplus lines broker to be licensed to conduct nonadmitted insurance business with the insured.

As things stand, brokers seeking to place excess-and-surplus lines coverage for national accounts have to be licensed in 50 different states.

Brokers have been lobbying hard for the bill, as it would make it easier to sell more surplus lines policies from which brokers would profit through commissions.

"This would make surplus lines more attractive. It would be more competitive generally, and wherever we see competition increasing in the industry, we see increased capital and better options for consumers," said Joel Wood, a senior vice president for public affairs with the Washington, D.C.-based Council of Insurance Agents and Brokers.

More than 25 percent of all commercial insurance in the United States is placed in the surplus lines market, the CIAB estimates.

BENEFITS ALL

"It simplifies premium tax collection and distribution to the states. It makes the process more efficient, and it's good for our GA's (general agents)," said Mike Miller, the president of the Scottsdale Insurance Co. a surplus lines carrier based in Scottsdale, Ariz.

Although he also classified it primarily as a broker's bill, Matthew Power, a Boston-based executive vice president with surplus lines carrier Lexington Insurance Co., said he thinks the bill, should it become law, will benefit carriers and consumers as well.

"While the House Bill is broker-centric, there are a number of ways that it is beneficial to the E&S carrier as well," Power said.

He said that, if the market functions properly, savings realized by brokers for the sale of individual policies should be passed on to the consumer.

"The bill creates significant efficiencies for the surplus lines broker. It provides simplified and easier access to a market where enhanced coverage opportunities may well exist, and I see that as very, very pro-consumer," Power said.

"Consider for a moment that a broker placing a national account into the excess-and-surplus lines market today may require as many as 50 property/casualty licenses, 50 excess-and-surplus licenses and, perhaps, 40 or more corporate licenses. The cost structure associated in maintaining the necessary infrastructure to satisfy current requirements carries with it a significant cost," Power also said.

THE REINSURANCE ISSUE

The bill also pre-empts state insurance regulators from interfering in reinsurance agreements of ceding insurers domiciled in other states. Both the New York-based Risk and Insurance Management Society Inc., which represents risk managers, and the Washington, D.C.-based Reinsurance Association of America praised the bill's passage.

The bill also may pave the way for an optional federal charter, according to some.

"This bill should be viewed as a positive step forward from a regulatory perspective, business cost perspective and business efficiency perspective," said Mark Lyons, chairman and CEO of Arch Worldwide Insurance Group. "The advent of having one state drive the regulatory process, based on the insured's home state, has long been desired by the surplus lines insurance industry and this bill makes that a reality," Lyons said.

"Now a uniform regulatory system would exist nationally, and perhaps Congress will address the issue of admitted companies by passing a bill on an optional federal charter."

September 14, 2009

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