WIN - Spring 2011 - (Page 32)
BY DAN MAHER, EXECUTIVE DIRECTOR EXCESS LINE ASSOCIATION OF NEW YORK
Incremental improvements or an exercise in frustration?
Insurance regulatory reform is not one single proposal or issue. It is a series of initiatives and moving parts. Therefore, you will find a wide variety of opinions about the good, the bad and the ugly regarding these initiatives, which often vary based upon your unique experience and occupation in this industry. What follows is one observer’s perspective on where regulatory reform has been, where it appears to be going and some predictions about the ultimate impact regulatory reform may have on the marketplace.
Been There, Done [with] That
The state-by-state system of regulation requires 50-plus licenses for producers and insurers, state-specific form and rate approvals on the admitted side and different forms and rules for filing nonadmitted transactions. These are the driving forces for reform initiatives. Most reform proposals from Optional Federal Charter legislation (OFC) to interstate compact solutions attempt to address the disparities created by a 50-state system of regulation.
Producer licensing has changed and while change is painful, this is an area that has improved and continues to improve. For E&S brokers, the Gramm-Leach-Bliley (GLB) Act permitted full nonresident licensing. Most states repealed bond and other expensive disparate licensing requirements, too. States are also moving closer to full electronic producer licensing for E&S brokers whether they get there through the NAIC’s National Producer Registry (NPIR) system or what might be the preferred federal proposal, NARAB II. Conceptually, each of the referenced proposals should make it easy to obtain all nonresident licenses electronically once you have obtained your resident license. While OFC would provide one producer license nationally, something all producers crave, that might be the only thing E&S brokers, particularly wholesalers would like about OFC.
Producer Compensation Disclosure
The only positive observation on this issue is that the wholesale insurance trades got out in front of disclosure proposals and secured an exemption for wholesalers and MGAs. That exemption is set forth in the law of the state with the most onerous disclosure requirements – New York.
is important to brokers who have found themselves in between two angry state regulators, both demanding tax payments. • A defined class of sophisticated buyers, exempt commercial purchasers, can waive the brokers diligent search obligation. • States are limited in regard to imposing eligibility requirements on surplus lines insurers unless the states adopt national uniform standards. This will ease the burden and costs on insurers in qualifying to underwrite E&S risks. • States are forced to move toward electronic licensing for nonresident E&S brokers or risk losing authority to charge licensing fees. The NRRA also intends but does not require states to allocate and share taxes on multistate E&S risks in a uniform or national system via an interstate compact or other process. The industry along with regulators and legislators drafted a compact back in 2007 (SLIMPACT), to address tax allocation and sweep in other uniform provisions for the E&S market. It was designed to be user friendly for the E&S community. In late 2010 the NAIC drafted a competing proposal known as NIMA, Nonadmitted Insurance Multistate Agreement. NIMA has yet to obtain any support for adoption from any sector of the insurance industry. A number of E&S brokers have said they fear states will splinter into several camps on tax allocation and the NRRA’s intended purpose of uniformity may be undermined. This is the greatest pitfall. The industry is working very hard to avoid it. If a tax allocation system is to be implemented, hopefully the legislatures will adopt SLIMPACT to sweep in additional uniform standards. If not, let the home state retain 100 percent of the tax and impose no further burden on brokers. Whatever they adopt, let it not be NIMA.
Data Mapping/An Equalizer
While the most significant complaint about the state system is the lack of uniformity, the great equalizer which may ultimately make this issue disappear is data mapping. Producers, carriers, and, on the E&S side, stamping offices are developing or have developed sophisticated systems which map data including image files so that filing/ compliance can occur with almost no CSR support. These systems will make the conundrum of form and data requirement variances almost irrelevant in the future. It will not completely eliminate state variances, but it should make them easier to deal with.
Dodd-Frank and the Nonadmitted and Reinsurance Reform (NRRA) Act
The NRRA provisions of Dodd-Frank should create a positive impact for E&S brokers once the changes caused by implementation leave a clearer picture of what will or will not be required. The NRRA in brief, creates four major reforms. • Only one state, the home state of the insured, regulates an E&S placement. All other state E&S placement laws are preempted. This
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Table of Contents for the Digital Edition of WIN - Spring 2011
WIN - Spring 2011
Table of Contents
Welcome to “WIN”
Hold, Fold or Double Down
Underwriting the Customer Relationship
Report From Capitol Hill: Fasten Your Seatbelts
Interview With La Insurance Commissioner James Donelon
Regulatory Reform: Incremental Improvements or Exercise in Frustration?
Are You Swimming Naked
In the Winner’s Circle: Patricia Roberts, General Star Management Group
2011 Wholesale Insurance White Paper Winners
Sustaining the Wholesale Insurance Industry
Index to Advertisers/ Advertisers.com
WIN - Spring 2011