Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Single surplus lines clearinghouse doesn't catch on, but NAIC pushes ahead

Few states join national surplus lines clearinghouses

Reprints
Single surplus lines clearinghouse doesn't catch on, but NAIC pushes ahead

The establishment of a single national clearinghouse to collect surplus lines premium taxes and allocate them among the states has not garnered a groundswell of support. But backers of one of the two models remain committed to the concept.

The National Association of Professional Surplus Lines Offices Ltd. wants to abandon the effort and let the policyholder's home state collect and retain all surplus lines premium taxes.

On the other side, however, the National Association of Insurance Commissioners' Surplus Lines Task Force stands behind a national clearinghouse as the most accurate and fair way to handle premium taxes.

“We disagree with home state wholeheartedly,” said Merle Scheiber, South Dakota's insurance director and chairman of Non-Admitted Insurance Multi-State Association Inc., the nonprofit organization formed under the Nonadmitted Insurance Multi-State Agreement.

NIMA, based in Tallahassee, Fla., uses the Florida Department of Insurance's Surplus Lines Clearinghouse to collect and distribute surplus lines premium taxes. NIMA members are Florida, Louisiana, South Dakota, Utah, Wyoming and Puerto Rico. The NIMA agreement does not require a minimum number of members for operation.

To increase its roster, NIMA is offering an associate membership, a 12-month trial under which non-NIMA states can use the clearinghouse services for free to determine their benefit to them. Those members will report policy information and receive quarterly reports on the amount of taxable premium that could have been allocated to their state, but will not receive their portion of the tax revenue.

However, Brady Kelley, executive director of NAPSLO, said, “We see no need for any national clearinghouse or tax-sharing function.”

Initially, NAPSLO was among many industry representatives collaborating on the development of the Surplus Lines Insurance Multi-State Compliance Compact to collect and distribute premium taxes.

The nine SLIMPACT members are Alabama, Indiana, Kansas, Kentucky, New Mexico, North Dakota, Rhode Island, Tennessee and Vermont. The compact requires 10 members to begin operation.

%%BREAK%%

The impetus for SLIMPACT and NIMA was the Nonadmitted and Reinsurance Reform Act, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010.

NRRA's purpose is to bring nationwide uniformity and efficiency to surplus lines insurance regulation and taxation. The NRRA provides for a uniform standard of home state taxation of surplus lines premium, and made it optional for states to allocate premiums to other states where risks covered under the policy are located.

Prior to NRRA, many associations were seeking a national approach to surplus lines tax sharing, Mr. Kelley said. Many industry insiders believed “that a national solution seemed to make sense,” he said, thinking that “a national scheme would never work unless a tax-sharing solution was a part of that.”

But NAPSLO's perspective has changed. In an August letter to insurance commissioners signed by Mr. Kelley and Keri Kish, NAPSLO's director of government relations, NAPSLO said its analysis of a Florida Office of Insurance Regulations December 2011 report suggests that “the costs of building and administering the tax-sharing clearinghouse far exceeded any apparent benefit of tax sharing to the states.” That perspective has been upheld by data since published by NIMA, the letter indicates.

“Net taxes are very small, and it still takes time and effort and a filing fee to support the process of tax sharing,” Mr. Kelley said.

NIMA in July announced that from July 1, 2012, to July 1, 2013, more than $531 million in multistate surplus lines premium, in which one of the NIMA members was the home state, were reported to the clearinghouse. Of that, $281 million was directly allocated to the six participating members of NIMA. “The clearinghouse collected more than $24.9 million in total taxes on this reported premium,” according to a statement.

Tiffany Maruniak, product and business development manager for the Florida Surplus Lines Office and clearinghouse manager, said that 70% of the taxes was allocated to NIMA states.

%%BREAK%%

Ms. Maruniak said that more than $100 million in premiums was reported to the clearinghouse between June 30 and Sept. 3, and states billed more than $5 million in premium taxes during that time.

Home state taxation is supported by 46 states that generate 80% of surplus lines premium, NAPSLO's Mr. Kelley said. That approach “seems to be working very well,” he said.

In the approximately five months since NIMA introduced the associate membership option, Mr. Scheiber said one state has confirmed its intent to take that option, though it has not yet been publicly announced. Two or three other states have expressed a strong interest, and many others have expressed some interest, he said.

California and other states already have licensed the premium-reporting software that the clearinghouse uses, so it would be very easy for them to become members, he said.

Mr. Scheiber said he hopes that one year from now, NIMA will have 10 members, the minimum required to keep the compact going.

NAPSLO's Mr. Kelley said the organization wants to focus on uniformity of filing dates and filing forms, and uniform implementation of insurer eligibility standards.

“If we had known then what we know now, we never would have worked toward a tax-sharing solution,” Mr. Kelley said.

Read Next