For some wholesalers, it will cut
filings by 75%—a savings they can invest in their
business instead of paperwork.
Wholesale brokers from Maine to Maui are watching closely the
progress of the “Nonadmitted and Reinsurance Reform Act
of 2007.” The bill, which passed the House in a voice
vote in June, has been referred to a Senate committee. If
passed by the Senate and signed by President Bush, the law
would go a long way toward erasing a nonsensical system that
only a bureaucrat could love.
House Bill 1065 (the Senate version is S.B. 929) is designed
to streamline the regulation and taxation of surplus lines
insurers. It will require only the home state of the insured to
collect premium tax payments for surplus lines insurance.
It’s a pretty simple fix to a problem that has long
flummoxed wholesale brokers burdened by the mounds of paperwork
required to follow current law—that is, current laws.
Until the federal bill is enacted, brokers still must try to
adhere to the regulatory provisions of 50 states, a
circumstance that can border on the absurd.
Take this example from John Jennings, president of Tri-City
Brokerage in New York: “If you have a property schedule
in 10 different states, you have to allocate the premium by
property and by state,” he says. “Instead of doing
one state filing, you wind up having to do 10 state filings to
make sure you’re adhering to all the tax codes of the
Consider this appraisal from Hank Haldeman, executive vice
president and director of The Sullivan Group in Los Angeles:
“The most fundamental impact is on the tax side of
it,” he says. “As it exists today and as it’s
existed in the entire time I’ve been in the business,
it’s been functionally impossible for the wholesaler to
be in full compliance on any multi-state risks, with the tax
provisions of the multiple states. They are in conflict, and if
you comply with one, there are others that you can’t
The bill now awaiting Senate approval, Haldeman says, will
“rationalize” the current state of affairs.
The bill has widespread support from throughout the industry
and not much in the way of opposition from any quarter. When a
similar version passed the House last year, the tally was
unanimous—417–0. Council President Ken Crerar
hailed it as “a victory for common sense.”
You really have to wonder why it’s taken so long to
get this far on such a commonsense, business-friendly
initiative. Can you say no-brainer? That’s why the
Council has taken the lead in pushing long and hard for the
“The way The Council handled it and the way Joel Wood
[senior vice president for government affairs] went about
getting it done was just fantastic,” Jennings says.
The law would save loads of time for brokers, which, of
course, means it would also save money now spent processing
loads of paperwork.
“For some wholesalers, it’ll cut the amount of
filings they have to do by 75%,” Jennings says.
“It’s a big cost savings for us. We’ll be
able to reinvest that money into far more useful parts of the
company. It will help us grow the business instead of
Another important aspect of the proposed law would enable
brokers who represent large policyholders to access the
non-admitted market directly. That means no more obligatory
steps to submit the risk to admitted insurers when declinations
by those insurers are all but assured. Essentially, the
legislation recognizes that the sophisticated businesses that
buy surplus lines insurance know the marketplace well enough to
figure out what type of coverage will fill their needs. Again,
the bill will provide a more uniform approach to a nettlesome
As Jennings puts it, “It’s relieving a
ridiculous administrative burden.”
In California, Haldeman says, a buyer of insurance needs
three declinations from insurers before it can proceed to the
non-admitted market. Meanwhile, Haldeman says, Texas simply
requires a wholesale broker to affirm that the insurance in
question is not likely to be available in admitted markets.
What if one state’s regulations don’t acknowledge
another state’s declinations? And what if those three
insurers aren’t certified to do business in another