House Panel Advances Federal Surplus Lines Reform Act

July 20, 2006

Federal legislation to reform the way surplus lines insurance is regulated has been approved by a House subcommittee.

The Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, chaired by Rep. Richard H. Baker (La.), approved H.R. 5637 by voice vote. The Nonadmitted and Reinsurance Reform Act of 2006, introduced by Reps. Ginny Brown-Waite (Fla.) and Dennis Moore (Kan.) on June 19, seeks to streamline the regulation of non-admitted insurance and reinsurance. The bill mandates that the state where the policyholder resides should be the entity that is in charge of regulation.

“As I noted in today’s bipartisan markup, non-admitted insurance reform is a pro-consumer piece of legislation,” commented Rep. Brown-Waite. “Simplifying and streamlining the insurance market will bring savings to consumers and companies doing business across state lines.”

H.R. 5637 would apply single-state regulation and uniform standards to the non-admitted insurance and reinsurance marketplace. The legislation would:

* give sole regulatory and enforcement authority to the insured’s home state for the placement of non-admitted insurance and create a uniform system for the collection and allocation of premium tax obligations related to non-admitted insurance;

* streamline eligibility requirements for non-admitted insurers and allow sophisticated commercial purchasers to directly access the surplus lines market;

* for reinsurance, give the ceding insurer’s state of domicile sole regulatory authority for determining whether or not a particular insurer qualifies for credit for reinsurance;

* prohibit states from applying their laws in an extra-territorial manner; and

* provide uniform regulation of reinsurer solvency based upon NAIC accreditation standards.

“I am pleased that the committee is addressing the problem of conflicting and inefficient state laws in the areas of non-admitted insurance and reinsurance,” said Rep. Moore. “This bill is an important first step in reforming the system of insurance regulation in this country, and I look forward to its passage on the House floor.”

Non-admitted insurance and reinsurance providers encounter several regulation problems, including: extra-territorial application of state law, different licensing requirements that discriminate against non-resident brokers, and state declination rules that critics say are denying sophisticated commercial insurance buyers direct access to the surplus lines markets.

Capital Markets Subcommittee Chairman Baker congratulated Congresswoman Ginny Brown-Waite for her leadership on this issue even while broader legislation to establish federal regulation of the industry awaits congressional consideration.

“While we work to forge a consensus on comprehensive regulatory reform, we must also try to move forward on those areas of incremental reform, like surplus lines, where we have general agreement,” Baker said. “This modest but important improvement will remove unnecessary burdens in the marketplace and move us toward greater efficiency that benefits both providers and consumers.”

Financial Services Committee Chairman Michael G. Oxley of Ohio also supported the surplus lines measure, which backers hope will go to the House for a vote soon.

“This targeted legislation reforms and revises insurance regulations that are inhibiting growth and limiting consumer access to the surplus lines markets,” Oxley said. “It also provides for greater regulatory certainty for reinsurance contracts and eliminates extraterritorial application of state law. These targeted reforms will make the nation’s insurance markets more efficient and effective, which in turn will provide more choices for consumers.”

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