By STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
Will 2010 be the year surplus-lines insurance carriers escape the burden of sorting out compliance issues from numerous states for the nonadmitted policies that cover risks spread throughout the nation?
In December 2009, the U.S. House of Representatives took a step in that direction when it passed an omnibus financial regulation overhaul package that included a component streamlining surplus lines and reinsurance taxing and compliance issues.
The action came not a moment too soon for the surplus-lines carriers.
For decades, surplus-lines leaders have sought this kind of legislation but for any number of reasons have failed to gain enough traction in Congress to get it passed.
In September, the House passed the Nonadmitted and Reinsurance Reform Act of 2009, which accomplished those streamlining goals, as well as similar aims in the reinsurance sector.
"We believe this bill will solve a number of regulatory problems by establishing federal standards for state regulation, while retaining the state regulation that avoided many of the problems seen in the recent crisis," said Richard Bouhan, executive director for National Association of Professional Surplus Lines Offices Ltd., cited in NAPSLO's blog.
But when it appeared unlikely that the reinsurance reform measure would gain a hearing in the U.S. Senate, backers of the proposal managed to incorporate it into the House and Senate omnibus financial regulation packages that deal primarily with new oversight regimes for banks and other financial institutions.
The reinsurance component of the bill would also allow reinsurers to be regulated for financial solvency issues by their domicile state, if that state is accredited by the National Association of Insurance Commissioners (NAIC) or has similar requirements as NAIC.
"The legislation attempts to eliminate extraterritorial application of state laws and promote more efficient solvency regulation of reinsurers by providing for a single regulator (domicile state) for financial solvency," according to information published on the Reinsurance Association of America (RAA) Web site.
In addition, states could see some of their authority curtailed regarding credit for reinsurance. If the domicile state of a ceding insurer is NAIC-accredited, or has financial solvency requirements similar to NAIC requirements, and recognizes credit for reinsurance for the ceded risk, then no other state could deny that credit.
Some might argue the bill could represent the first step in the reinsurance industry's efforts to be regulated solely by another single regulator, the federal government.
NAPSLO officials voiced satisfaction with the House move and expressed optimism that finally all the legislative efforts would come to fruition. Executive Director Bouhan said that, by "establishing that the home state of the policyholder governs a transaction, the surplus-lines industry would no longer face trying to comply with confusing and conflicting laws and regulations of multiple states on a multi-state transaction."
In addition, what NAPSLO terms as "multiple, duplicative and overlapping" compliance requirements would be eliminated on surplus-lines policies that insure risks across state lines.
Surplus-lines advocates could face disappointment not only if Congress fails to reach agreement on a final omnibus bill, but also if the more controversial reinsurance portion of the amendment jettisons chances for success for the amendment entirely.
The surplus lines portion is seen as generally noncontroversial because it has already passed three times in the House without a negative vote, though it has never made it to the Senate for consideration.
"The Senate likes to handle big sweeping issues, and I guess this just never made the cut," said one industry observer.
January 4, 2010
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