Slimmed-down SMART bill to reform surplus lines insurance regulation; brokers pledge their support

In a step to overhaul the current state of insurance regulation, Reps. Ginny Brown-Waite, R-Fla., and Dennis Moore, D-Kan., have introduced legislation that would mandate states to establish a uniform system of regulation for the surplus lines industry.

The new bill, which is a slimmed-down version of the proposed State Modernization and Regulatory Transparency Act (SMART), pulled out incremental pieces of the SMART legislation targeting nonadmitted insurance and reinsurance, in an effort to ease the legislation’s path through Congress.

Rep. Richard Baker, R-La., chairman of the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, held a hearing on the new bill, the Nonadmitted and Reinsurance Reform Act of 2006, last month.

Several trade groups, including the American Association of Managing General Agencies, the National Association of Surplus Lines Stamping Offices and the Council of Insurance Agents and Brokers testified in support of the legislation at that hearing.

“This is an area where various state regulations are in conflict, and state regulators for decades have been unable to reconcile their differences,” said Ken A. Crerar, president of The Council. “With respect to multi-state commercial insurance placements, the current system benefits no one, least of all the policyholders who ultimately pick up the tab.”

“We are quite happy with the bill,” said Dick Bouhan, executive director of NAPSLO. “A lot of the material in the legislation are issues which we have discussed with the committee and we have publicly supported in the past,” he said.

Some of those issues include the requirement that only one state, or the home state of the insured, may require any premium tax payment for nonadmitted insurance. Under the legislation, the amount of any premium tax payment for nonadmitted insurance shall be determined on the basis of any compact or procedures entered for allocation among the states.

The new legislation also calls for no other state, except the home state of the insured to regulate nonadmitted insurance. Additionally, no other state may require the surplus lines broker to be licensed to sell, solicit or negotiate nonadmitted insurance products except the home state of the insured.

“When surplus lines activity is limited to a single state, regulatory problems are minimal,” Crerar said.

Bouhan said, “we now have a situation in which surplus lines brokers are getting licensed in a number of these states,” because of multi-state risks. “[Brokers] have to comply with virtually every state with which there’s an exposure.”

The legislation aims to solve those problems by investing regulatory authority in the home state of the insured.

AAMGA’s Executive Director Bernd Heinze says he was not really surprised that surplus lines and reinsurance were first on the list for insurance regulatory modernization efforts by federal legislators.

“We have been talking with Congressman Baker and his committee for the past year,” Heinze said. “The fact that this is the first part of the marketplace that is looked at for reform is very encouraging,” he said.

Heinze says that he expects more reforms and modernization bills to come. “Whether they continue to come after the Fourth of July recess, or prior to mid-term elections, or even in the next Congress,” remains to be seen, he said.