Leader's Edge logo Channel Check by Kevin Amrhein Tell the Editor
Channel Check by Kevin Amrhein No-Brainer

For some wholesalers, it will cut filings by 75%—a savings they can invest in their business instead of paperwork.

By  Christopher Hann

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 different states.”

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 comply with.”

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 bill’s passage.

“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 administrating paperwork.”

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 process.

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 state?

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