NAPSLO REPORT: Framing the Work

NAPSLO still needs to ensure states appropriately implement the Nonadmitted and Reinsurance Reform Act's insurer eligibility provisions.

Matthew D. Nichols will take the oath this month as president of the National Association of Professional Surplus Lines Offices Ltd. for the 2013 term after having served on the board since 2005 and chairing several committees. The 20-year insurance industry veteran is currently finishing his eighth year as president of All Risks Ltd., based in Hunt Valley, Md. Previously he served in senior positions with Colony Management Services Inc. In August, Risk & Insurance® interviewed him on the top issues facing the legislative agenda.

Q: What are the greatest challenges facing NAPSLO this year?

NAPSLO REPORT: A Different Dawn (10/01/11)

A: A key challenge facing NAPSLO is our continued work on the implementation of the Nonadmitted and Reinsurance Reform Act (NRRA). The NRRA ushered in a national framework for the regulation and taxation of the surplus lines industry, representing a dramatic improvement from the multi-state tax, licensing and compliance issues that plagued the industry for decades. Since the NRRA's adoption, our efforts have been focused on how states may implement any tax sharing approaches. We still have work to do to ensure states appropriately implement the NRRA's insurer eligibility provisions, and our work continues in states whose requirements are inconsistent with the NRRA. We believe there is still tremendous opportunity to improve uniformity in a number of areas, such as forms, filing requirements, filing dates and procedures. We continue to promote and work to preserve the uniformity and efficiencies intended by the NRRA.

Q: What are the greatest challenges facing surplus lines brokers this year in their sales and service efforts?

A: The challenges remain the same year after year, seemingly only getting magnified as we all try to do more with less and we all try to determine where our dollars are best spent. From a service effort standpoint, technology drives a significant portion of this.While insurance carriers/brokers arenot known for being cutting edge, we continue to improve our product and to usetechnology moreeffectively,whilemaking our sales team more intelligent in how they market and use their time. With the information available, the number of markets out there, the largest challenge continues to be the ability to develop larger, deeper relationships on the sales side.

Q: Are you pleased with the progress of NRRA implementation?

A: There are only two jurisdictions (Michigan and Washington, D.C.) that have not passed implementation legislation. With nearly 80 percent of nationwide premium in 44 states retaining 100 percent of the tax as the home state, we are pleased with the progress on the tax side of the business. We believe the home state reform is improving the process and will reduce the cost of surplus lines tax compliance within the state-based regulatory system. Our next priorities, as mentioned before, will include uniform implementation of the NRRA's insurer eligibility provisions, and opportunities to improve uniformity within the state-based system.

Q: What is the main aspect of NRRA implementation that has yet to take place?

A: While a number of states have appropriately implemented the NRRA's insurer eligibility provisions, the industry's work continues in states whose requirements are inconsistent with the NRRA. Prior to the NRRA, there were unique laws, regulations and practices among the states for the authorization of surplus lines insurers. The NRRA changes that by defining clear and uniform national criteria for determining the eligibility of U.S.-based companies to write surplus lines insurance.

Earlier this year, NAPSLO increased its focus on the states' implementation of the NRRA's two-prong criteria for insurer eligibility as required by the NRRA. Working with many of our fellow insurance trade associations, NAPSLO met with regulatory officials and submitted aletter to the National Association of Insurance Commissioners regarding the need for the uniform implementation of the NRRA's insurer eligibility standards nationwide. NAPSLO will be working with the NAIC, its Surplus Lines Task Force and the other trade associations to address these issues.

In addition, in enacting the NRRA, Congress intended that each state adopt nationwide uniform requirements, forms and procedures for the reporting, payment, collection and allocation of surplus lines premium taxes. There is still tremendous opportunity to improve the uniformity in forms, filing requirements, dates and procedures to create the more efficient and simplified regulation intended by the NRRA. Even beyond the uniformity currently achieved with the home state approach, states have the opportunity to further reduce the complexity and cost of unique compliance rules and requirements across state lines.

Q; What lines of insurance are currently gaining more prominence in surplus lines writing and what lines are losing prominence, and why?

A: The answer to this question changes by territory and on occasion by risk. Certainly, property, catastrophe/property specifically, has gained the most prominence with rate increases in the past year. Casualty lines continue to increase a bit, although that can change on any given risk. Workers' compensation and auto both are trending up as well. It appears that the market is shifting a bit although nothing dramatic has occurred to date. Possibly, more than anything, an economy that has been more stable feeling the past 12 monthshas helped confidence as much as anything. Surplus lines writings will continue to grow again, possibly more aggressively, in the coming several years.

Q: Are young men and women finding the insurance brokerage industry a more appealing career prospect than in previous years and, if so, why.

A: I do not knowthat I would state that young men and women are finding the insurance industry more appealing. However, we do see growth in the numberof colleges and universities with risk management programs and the size of these programs. While this is not the only arena from where NAPSLO members hire, we have seen a tremendous growth in qualified candidatesthrough our annual internship program. I believe that young graduates withnon-insurance majors see insurance as a compelling career and a viable long-term plan.

Q: And are these young men and women finding the surplus linessector more appealing within the brokerage industry and why?

A: I believe that the "sale" we are able to make in the surplus lines segment of the business is better year after year. The opportunity to build a career with a carrier or broker whileliving in a very entrepreneurial world is appealing to young people.Our segment of the business has that feeling of building your own business within a business, especially on the broker side.We arenow a much more significant portion of thecommercial world than we were 20 years ago. The bottom line is that theless-structured structure makes this a great industry and a great place to build a career.

Q: Do you support state based insurance regulation and why?

A: NAPSLO believes the nation's 160-year old system of state-based insurance regulation has worked well in protecting consumers and overseeing the solvency of the nation's insurers and strongly supports the state-based system of insurance regulation. NAPSLO also believes that any federal policy regarding insurance regulation continue a course aimed at strengthening state insurance regulation and coordinating the efforts of federal agencies with state regulatory systems.

Q: What has been the most satisfying aspect for you personally in your surplus lines career?

A: I have only worked two places in my career -- one on the company side and one on the broker side. The most satisfying aspect of my career has beenthe opportunity to work forprivately held companies thatare always focused on the next five to 10 years. With thisopportunity comes the luxury to be able to invest and watch people grow, watch products grow and watch offices find success on a long term basis. Seeing the success after building something organically givesour team a tremendous feeling of accomplishment.

--Interview conducted by Steve Tuckey

October 1, 2012

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