States participating in the Non-admitted Insurance Multi-state Agreement, or NIMA, have adopted a premium allocation method for distributing surplus lines premium taxes on casualty insurance.
The adopted method aims to streamlines the allocation and distribution process of surplus lines premium taxes for surplus lines brokers and member states, according to NIMA. NIMA expects to launch its Surplus Lines Clearinghouse on July 1, 2012.
The allocation methodology is based on a proposal initially created by the Kentucky Department of Insurance. The “Kentucky Proposal” excludes the majority of casualty surplus lines premium from multi-state allocation. The home state will continue to collect most surplus lines tax for casualty insurance unless a casualty policy is rated on a state or location-specific basis.
“In the spirit of compromise, NIMA members have once again worked together to integrate the best ideas of its members to create a streamlined process consistent with the provisions of Dodd-Frank,” said Florida Insurance Commissioner Kevin McCarty. “I am hopeful that other states that have supported the Kentucky proposal in the past will recognize this achievement, and consider joining NIMA.”
The primary advantages of this approach, NIMA says, include increasing uniformity among states, streamlining the filing process for multi-state taxes, and making it easier for insurance brokers to transition to the new system. The new allocation methodology does not require brokers to collect any additional data elements at the time of policy issuance.
“Over the past several months, the NIMA states have engaged our brokers in a discussion regarding the allocation method that will be used for premium tax allocation,” said Merle Scheiber, director of the South Dakota Division of Insurance. “The feedback we received indicated the ‘Kentucky Proposal’ was the best option for our brokers. The NIMA states respected that feedback and took decisive action to work with our brokers.”
The Florida Surplus Lines Service Office (FSLSO), which was awarded the service and license agreements to act as the Surplus Lines Clearinghouse for NIMA, has given assurances to NIMA Inc. that these changes to the premium allocation methodology could easily be incorporated into the current system by the time for the Surplus Lines Clearinghouse launch date of July 1, 2012.
The proposal is supported by the National Association of Professional Surplus Lines Offices (NAPSLO) and states that joined the Surplus Lines Multistate Compliance Compact (SLIMPACT) as well as several trade and industry groups. NIMA members will meet on Tuesday, May 29 to incorporate the Kentucky Proposal to make corresponding revisions to the NIMA Exposure Allocation Methodology, and officially amend the NIMA Agreemen
NIMA Inc., is a non-profit corporation established by NIMA states that will provide a mechanism to report, collect, allocate and distribute surplus lines tax revenues consistent with the Non-Admitted and Reinsurance Reform Act (NRRA). The NRRA became part of the Dodd-Frank Wall Street Reform legislation passed in 2010 that allows only the home state to require premium tax payments for non-admitted insurance absent an agreement. Through the NIMA agreement, participating states will be able to collect premium taxes owed to their state when they are not the home state of the policy, thus protecting each participating state’s tax revenue on surplus lines policies.