Insurance Licensing Services of America

D-Day for NRRA

2011-07-25T10:01:00.000-05:00

July 21, 2011- The year has passed quickly and we've reached the deadline for the implementation of the Non-admitted Reinsurance Reform Act (NRRA), which included surplus lines reform, with the intent of streamlining the surplus lines tax filing process. At the moment, there are two plans for the states to consider if they wish to share revenues on multi-state surplus lines tax filings as the new federal law states that only the home-state of the insured may collect taxes on multi-state policies. Some states have changed their laws to tax 100% of the premium on multi-state policies and not participate in shared allocations at all.

Many would argue that this could financially undercut some of the smaller states and cause even more trouble when trying to accurately determine the “home state.” The reality is that, if the states do not come together and come up with a simplified and unified system for the filing of surplus lines taxes, it is the brokers who will go looking elsewhere for solutions; perhaps taking it back to the federal level and the newly created Federal Insurance Office (FIO). This sort of situation is why it is imperative for all the states to work together to come up with a workable solution to all the items in NRRA. In achieving such, every one wins. The brokers get a streamlined surplus lines tax filing process, carriers have standardization of eligibility requirements and the states retain their rights to regulate the surplus lines industry in the future.

The National Conference of Insurance Legislators (NCOIL) has endorsed SLIMPACT (Surplus Lines Insurance Multi-state Compliance Compact) and the NAIC has put forth NIMA (Non-admitted Insurance Multi-state Agreement) for states to consider when drafting new legislation to comply with the mandates in NRRA. The states do not have to join in or contract with any compact or agreement in order to comply with the new federal laws. With two systems and two different clearing houses to deal with, not to mention the winner-take-all home states, it's no longer a question of failure as an option; failure is eminent.

Last week Insurance Licensing Services of America, Inc. (ILSA) attended the NCOIL Summer Meeting in Newport, Rhode Island where the inaugural commission meeting for SLIMPACT was held. SLIMPACT has nine member states already and only requires one more before the compact can be implemented and a clearinghouse formed. The NAIC’s compliance agreement, (NIMA) now has six member states and has already started the clearinghouse formation process. Again, this means the states now have four choices, adopt SLIMPACT, NIMA, collect 100% of the premium taxes, or collect only their portion of the tax. For the brokers the events that have unfolded mean a more complex surplus lines tax filing process making them the clear losers.

For over a decade ILSA has assisted thousands of brokers with an array of compliance services including surplus lines tax filing through the development of SLIC™ (Surplus Lines Industry Connection). A system that provides a basic web interface for users to upload, edit and submit insurance coverage packages. Coverage data can be uploaded and parsed from a spreadsheet template, and optionally viewed or edited via an intuitive web interface. State tax rates are built into the formulas allowing quick and easy allocation calculations on multi-state policies. For years brokers using ILSA's system have been able to properly allocate taxes for multi-state placements. SLIC™ uses cloud technology to provide brokers with 24/7 accessibility. This places ILSA in the unique position of being able to offer practical information and expertise in the area of researching and building the clearinghouse for streamlined surplus lines tax filings and allocations.

ILSA, on behalf of its clients, will continue to follow the progress of the differing compacts and agreements as well as the states' compliance efforts as we navigate the uncharted waters of the NRRA era. With this in mind, ILSA will be attending the Western States Surplus Lines Conference (WSSLC) in Lake Tahoe, July 24-27. For more information please feel free to contact Lisa Miklojachak at (254) 729-8002 lmiklojachak@ilsainc.com OR ILSA@ILSAINC.COM

Surplus Lines Regulation: Not Exactly a Piece of Cake.

2011-02-11T16:27:00.000-06:00

By: Arleen Taveras – President & CEO, Insurance Licensing Services of America, Inc.

With this summer’s passing of the financial reform bill, including the Non-admitted and Reinsurance Reform Act (NRRA), regulators are now under the gun to come up with the how to meet the law’s when deadline (July 2011) for implementation of the mandates set forth in this legislation. This monumental undertaking has been put in the hands of the National Association of Insurance Commissioner’s (NAIC) Surplus Lines Implementation (EX) Task Force; a body that must create a clear, workable structure from the vague and certainly ambiguous blueprints set before them by the federal government. This task force is comprised of insurance commissioners from LA, AK, DE, FL, IL, IN, NV, NY, PA, SD, TX and VA and is chaired by the Honorable James J. Donelon, Louisiana Commissioner of Insurance.

Chief among the hurdles to be cleared is the adoption of a unified system for surplus lines tax premium collection and allocation including premiums on multi-state placements. Either from compacts or agreements, the task force must come up with an easy tool for brokers and state regulators to use for tax filings in the home state of the insured which will also allow the other participating states to capture their fair portion of the tax premiums through an automated allocation process. This feat can be likened to asking 51 individual chefs to bake a single cake to feed over 160,000 people. If that isn’t daunting enough, the 51 chefs must agree on the shape, size, and flavor of both cake and frosting. Oh, yes, and these chefs must also agree on the size of each slice as it is cut.

The task force has the unenviable task of creating this regulatory recipe and having it market ready before the opening sessions of the states legislatures at the beginning of the year. Failure to create a palatable product that will be adopted by the states could cost many states millions in tax revenue as they will lose their authority to collect their portion of the premiums on multi-state placements if they are not the home state. The home state of the insured, by default, will be the only state allowed to collect taxes on the policy. Also, home states that don’t opt in to the unified tax filing system – compact or agreement - could lose their rights to charge a fee for licensing surplus lines brokers.

Recently, the task force met to consider several proposals such as the SLIMPACT plan from Virginia and SLIMA plan from Florida. On October 26th, the decision was made to combine elements from both proposals and they came up with the Nonadmitted Insurance Multi-state Agreement (NIMA). Now the task force must refine this agreement as all the states, not to mention the other interested parties such as NAPSLO and the state stamping offices, weigh in with their concerns and desired input.

To add another wrinkle, the National Conference of Insurance Legislators (NCOIL), with a strong push from the industry, have put forth an updated version of SLIMPACT – originally mapped out in 2007 – and have dubbed it “SLIMPACT-Lite.” This agreement has the support of top industry groups such as, The American Association of Managing General Agents (AAMGA), the National Association of Surplus Lines Offices (NAPSLO), and The Council of Insurance Agents & Brokers (The Council), who recently sent an open letter to insurance regulators and legislators asking them to support NCOIL’s proposed option over NIMA as proposed by the NAIC. The letter points out several issues they feel are not adequately addressed in NIMA; issues they fear will result in even more confusion for both legislators and licensees. At this point, our compliance kitchen is getting very crowded.

NCOIL held its annual meeting in Austin, TX in mid November where this topic was discussed at length. NCOIL members were adamant in their lack of support for NIMA stating that it failed to live up to the mandates of the NRRA and asked members of the NAIC, including James Donelon, the chairman of Surplus Lines Implementation (EX) Task Force, to join in a joint task force that would include members of the NAIC and NCOIL where the pros and cons of NIMA and SLIMPACT-Lite could be discussed and a possible solution found between the two options.

As we enter the first weeks of December, NCOIL has thrown all its weight into supporting their SLIMPACT-Lite plans and have opted to take it directly to the states. The NAIC also voted to push forward with NIMA - in the shadow of mounting opposition from industry organizations - and stated that NIMA in its current form would move forward with the option to edit it later. This vote took place in spite of a last minute proposal from Delaware that attempted to blend the NIMA and SLIMPACT-Lite plans into one unified compact that appeared to offer a workable compromise. Motions for more time to review the new option were denied and the motion to move forward with NIMA was carried 9 to 0 with two task force member states abstaining. We now have two compact agreement options going to the states; if not a recipe for disaster, it has certainly increased the temperature in the kitchen.

Meanwhile, the nation’s surplus lines brokers sit idly by and wonder about the future of their business. The NRRA not only affects how and to whom they file their taxes on policies, but also their licensure and compliance which is still very much up in the air as everything is contingent upon the agreement and subsequent buy-in of each state. If a multi-state policy is written involving two or more states and each state has adopted a different compact, home state rules apply and things start getting messy and confusing again, especially for the broker.

Failure is simply not an option for states already suffering financially and working overtime to interpret and implement the necessary changes to comply with the Healthcare Reform Act that also passed into law earlier this year. The NAIC task force is scheduling weekly conference calls to share and report all correspondence and progress made on implementation of the NRRA. They certainly have their work cut out for them along with a deeply vested interest in the outcome.

If all that isn’t enough to ruin your appetite, the midterm elections are over and there’s been a major shift in the political tides. Republicans have gained enough seats to take control of the House and rumors of repeals, of all or parts of recent insurance and financial legislation, circulate and cause more confusion and angst. To top that, failure to find a workable solution that lives up to the intent behind the NRRA could result in further federal involvement as the FIO must report back to congress on the effectiveness of the NRRA mandates including implementation of the interstate compacts in 2013.

Once again, we are relegated to the cheap seats as we finish up the year much as we started it … uncertain, and hungry for something solid to build on.

Cake, anyone?

R: 12/9/2010

Benefits of Outsourcing with ILSA

2009-12-03T16:13:00.000-06:00

Companies May Downsize; Compliance Requirements Never Will

The number one issue that today’s businesses are facing, is the unstable economy which has resulted in the need to cut costs quickly and drastically. Corporate decision makers are facing decisions to downsize, merge or consolidate in order to make it possible to cut overhead. One key way that many businesses have found to decrease overhead is to outsource those duties that are not revenue generating functions of that business. If a business can increase productivity and grow their customer base while decreasing labor and overhead costs; those businesses will be very attractive to investors.

Ask yourself, why do you find it necessary to expend the capital and operating costs on infrastructure and labor for non core duties, when it is more cost effective to have experts in the field perform this service for you? How much of your hard earned revenue is spent on training and updating your personnel for over 100 regulatory compliance offices? Despite all of your best efforts, are you finding that your agency and producers are still not fully compliant? In other words, are you still receiving penalty notices or administrative actions from the states?

Below are what we consider to be the most important financial, productive and strategic benefits of outsourcing your compliance needs:
Reduce capital expenditures/operating costs and eliminate infrastructure investment (less space, equipment & management)
Reduce labor expenses and the need for specialists and continued training as well as level out cyclical and peak time staffing problems
Allow your business time to focus on mission critical projects and allow your personnel to focus on customer service
Gain a competitive edge by establishing long-term relationships with field experts giving you access to best practices and proven methodology.
Your peripheral tasks are their core business. The experts know how to do it faster with more efficiency and effectiveness.
Reduce your risks by eliminating the knowledge gap and avoid the cost of changing technology by leveraging the provider’s extensive investment in technology, methodology and knowledge. This allows you to keep pace with changing technology and regulation without changing your infrastructure.

Put your company on the fast track to maintaining compliance by relying on the experts to complete those functions for you. Concurrently, you can then put your time and focus back where it belongs and where it benefits your company the most; your core/revenue generating duties and putting your customers first.

Surplus Lines Tax Filings Challenge

2009-11-30T16:04:00.000-06:00

How much do you really know about Surplus Lines Tax Filings?

If you are licensed for surplus lines in multiple states, whether you are currently writing business or not there are a few things you must know. Take this short quiz to see where your knowledge level is concerning the tax filing and reporting compliance of surplus lines placements.

1. Most states require three declining carriers as part of your due diligence, but one state requires five; which state is it?

2. There are approximately 34 states that require annual reports if business was written during the period. Of those states, how many require reports even if no business was written?

3. Name one state that requires non premium bearing endorsements to be filed.

4. What is the statutory penalty imposed by the state of West Virginia for the late filing of a quarterly report?

5. Approximately half of the 50 states allow courtesy filings; name five of the states that DO NOT allow courtesy filing.

6. Name three states in which the tax filings MUST be placed on an individual’s license because there is no provision for filing on an agency license, or the state does not issue an agency license.

For Answers and More Information contact: Joyce King at (254) 729-6122 or jking@ilsainc.com