WASHINGTON—Multiple state approaches in implementing the surplus lines reform provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act are causing “confusion and compliance headaches,” a brokerage executive told a congressional panel Wednesday.

Steven Monroe, chief compliance officer-U.S. and Canada for New York-based Marsh Inc., noted that the surplus lines provisions of the financial services reform law were designed to reform state regulation of the surplus lines market.

“Unfortunately, despite Congress' best intentions in drafting the law, the state implementation process has been marked by confusion and frustration,” Mr. Monroe testified before the House Financial Services Committee's Subcommittee on Insurance, Housing and Community Opportunity on behalf of the Washington-based Council of Insurance Agents & Brokers.

“Instead of taking advantage of the opportunity the Dodd-Frank reforms presented to the states to devise a single, uniform approach to surplus lines regulation…the states have gone the opposite way—devising multiple approaches that are causing confusion and compliance headaches,” Mr. Monroe said.

He pointed out that the reform provisions are based on the concept of “home state rule.” Among other things, the law limits the regulation of a surplus lines transaction to the home state of the policyholder and allows sophisticated buyers to approach the nonadmitted market without first having to attempt to obtain coverage in the admitted market.

It also holds that only the home state of the policyholder can require payment of premium tax. The law allows, but does not require, the states to allocate premium taxes among themselves.

But Mr. Monroe said the states are following five different approaches to the tax issue, ranging from taking no action to keeping 100% of the tax collected to allocating taxes through competing—and as of yet nonoperational—multistate allocation systems. The result is that brokers are left to determine how to calculate, collect and pay applicable taxes in the states that have approved multistate agreements.

In addition, some states want to impose and collect taxes on premiums stemming from non-U.S. risks, he said.

Mr. Monroe said that while “we believe the situation will improve,” the states have again demonstrated “that they will not modernize insurance regulation without federal pressure and even then they will not go easily.”

The hearing was called to discuss several draft changes to the Dodd-Frank Act, including changing the law to exclude insurance companies from the Federal Deposit Insurance Corp.'s orderly liquidation authority.