WASHINGTON—Inclusion of a provision to streamline the regulation of surplus lines insurers in a comprehensive financial regulatory reform bill is drawing plaudits from industry observers.

Senate Banking, Housing and Urban Affairs Committee Chairman Christopher Dodd, D-Conn., included the Nonadmitted and Reinsurance Reform Act as part of the 1,136-page discussion draft of the Restoring American Financial Stability Act of 2009, which he unveiled Tuesday. The measure also would establish an Office of National Insurance within the Treasury Department.

Among other things, the bill would make it easier for risk managers to access the surplus lines market and set a uniform system of allocating and remitting surplus lines premium taxes.

The bill also would simplify reinsurance regulation by eliminating extraterritorial application of state reinsurance laws and make the domiciliary state the lone regulator of financial solvency.

The House unanimously passed its version of the act in September.

The proposed National Insurance Office would act as an adviser to the Treasury Department on domestic and international insurance issues and oversee the federal terrorism insurance program. It also would have the power to pre-empt state insurance regulators in some circumstances.

Insurance is only a small part of the bill. Among other things, the measure calls for establishing an Agency for Financial Stability that would monitor systemic risk and have the authority to break up large, complex financial institutions if they threaten the country’s financial stability.

The New York-based Risk & Insurance Management Society Inc. “is extremely pleased that the draft bill circulated by Chairman Dodd includes several of our legislative priorities,” said Nikolas Kapatos, chairman of RIMS’ external affairs committee and senior vp and enterprise risk manager for Houston-based Sterling Bancshares Inc. “Chief among those would be a bill addressing the surplus lines or nonadmitted insurance market.” He noted that Sen. Evan Bayh, D-Ind., and former Sen. Mel Martinez, R-Fla., had introduced the measure as free-standing bill earlier.

“It included provisions permitting ‘qualified risk managers’ more direct access to the nonadmitted market than current law allows,” said Mr. Kapatos. “The House has passed its version no fewer than three times most recently this year. With the Senate regulatory modernization bill incorporating the Bayh-Martinez legislation, we believe we stand a good chance of finally getting this much-needed legislation passed into law.”

Mr. Kapatos said RIMS also supports inclusion of the federal insurance office concept in the bill. “Also, we view this legislation as precursor to the society’s long-held position in support of an optional federal charter for commercial property/casualty insurers.”

“The Senate Banking Committee’s action is a giant step toward realizing the goal of a more efficient process for transacting surplus lines business for both consumers and insurance professionals,” Marshall Kath, president of the Kansas City, Mo.-based National Assn. of Professional Surplus Lines Offices Ltd. and chairman and chief executive officer of Dallas-based Colemont Brokerage Group Inc., said in a statement.

The Washington-based Council of Insurance Agents & Brokers is “extremely grateful that Chairman Dodd has included the surplus lines provisions in his discussion draft,” said Joel Wood, senior vp at the CIAB. “While this bill has vast implications that will likely take months to work through, we think the chairman has struck the right notes on insurance regulation.”

Mr. Wood added that commercial insurance buyers “will benefit tremendously from the efficiencies and savings associated with the passage of provisions to apply home-state rules to access the surplus lines marketplace for multistate risks.”

While hailing inclusion of the surplus lines reform language, a representative of another property/casualty insurance trade group raised questions about other parts of the measure.

“Sen. Dodd has proposed historic sweeping restructure of the financial regulatory system,” said Jimi Grande, senior vp in the National Assn. of Mutual Insurance Cos.’ Washington office. “We were pleased that he included the Nonadmitted and Reinsurance Reform Act. That’s a simple yet concrete step toward streamlining insurance regulation.

“We do have concerns with several other areas of the legislation,” said Mr. Grande. “When it comes to systemic risk, we continue to believe that nearly every examination of financial crises concludes that insurance played no significant role in the crisis. Another provision we have some concerns with is the creation of the Office of National Insurance. We want to ensure that there are no duplicative regulatory requirements. We don’t fundamentally have a problem with the idea of the office; the problem comes in with how the office gets defined, powers granted to the office, and any regulatory duplication of what’s already being done in the states.”