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Florida's exit may be "death blow" to surplus lines compact

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Florida will withdraw from the Nonadmitted Insurance Multistate Agreement effective June 1, the Florida Office of Insurance Regulation confirmed Friday.

“As a member since 2011, Florida was fully committed along with the other member states to the benefits envisioned by this multistate agreement, to include the reporting, payment, collection and allocation of premium taxes for nonadmitted insurance,” said a spokeswoman for the Florida Office of Insurance Regulation in an email.

“However, despite the achievement of these benefits, nationwide participation in NIMA, especially among large states, did not occur as expected and lead to the decision to withdraw. Florida will continue to use the Florida Surplus Lines Service Office's clearinghouse services on a single-state only basis via an independent contract separate from the NIMA arrangement. We appreciate the efforts and participation of all the other NIMA member states in this joint venture and look forward to the continued relationship with the FSLSO.”

The Tallahassee, Florida-based FSLSO runs the clearinghouse for NIMA.

NIMA came into being in response to the Nonadmitted and Reinsurance Reform Act, which was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. One of NRRA's aims was to clarify that the only rules governing the placement of a surplus lines policy, including collecting premium taxes, are those of the home state of the insured. But some states chose to create interstate compacts to allocate premium taxes among compact members.

Brokers and others criticized the state compact approach as unnecessary and costly. And one such clearinghouse — the Surplus Lines Insurance Multi-State Compliance Compact — never came into operation because it did not get 10 states to enter an agreement. NIMA, which does not require a minimum number of states to join, was activated, with an initial membership of 11 states plus Puerto Rico.

Florida's withdrawal leaves only three states — South Dakota, Utah and Wyoming — plus Puerto Rico as members, raising questions about the organization's future.

“Florida was the largest state,” said Keri Kish, director of government relations at Kansas City, Missouri-based National Association of Professional Surplus Lines Offices Ltd. “With Florida's withdrawal, it's taking most of the tax sharing revenue for the other states with it.”

NIMA “was an unnecessary burden for the broker and for the consumer,” said Ms. Kish. “NAPSLO strongly believed that the cost of supporting any tax sharing system would far exceed the benefits derived from the insignificant tax reallocation among participating states. And we found that to be true since NIMA became operational in 2012.”

Florida's withdrawal from NIMA is “very likely the death blow to the multi-state surplus lines premium tax allocation mechanism” said the Washington-based Council of Insurance Agents & Brokers in a message to members.

“With the withdrawal of Florida, NIMA loses its largest market and brings us one step closer to finally realizing the long-delayed goal of the Nonadmitted and Reinsurance Reform Act (NRRA) for a single, uniform, approach to the taxation of multi-state surplus lines placements,” said the CIAB.