Revisiting Surplus Lines Regulation Reform

Federal lawmakers once again are preparing to tackle the issue of how states can more effectively regulate the surplus lines insurance market. It’s been tried before, but legislation was recently reintroduced in the U.S. House of Representatives with the goal of standardizing state insurance regulation and introducing efficiencies into the surplus lines industry.

Reps. Dennis Moore, D-Kan., and Scott Garrett, R-N.J., members of the House Committee on Financial Services, have reintroduced the Non-Admitted and Reinsurance Reform Act of 2009 (NRRA), or HR 2571. The measure has 20 other cosponsors.

The Senate may soon have a similar proposal to contemplate as Senators Evan Bayh, D-Ind., and Mel Martinez, R-Fla., members of the Senate Committee on Banking, Housing and Urban Affairs, have said they plan on introducing a version on their end.

The bill would establish national standards for how states regulate the surplus lines market and reinsurance, and would create a uniform system of surplus lines premium tax allocation and remittance, one-state compliance on multi-state surplus lines risks, and direct access to the surplus lines market for sophisticated commercial purchasers.

Various insurance industry trade groups, including the National Association of Professional Surplus Lines Offices Ltd. (NAPSLO), the Independent Insurance Agents & Brokers of America (Big “I”), and the Property Casualty Insurers Association of America, appear to be supporting the legislation. It passed the House in 2008 and in previous years. The Senate took no action on it in 2007, however.

Independent insurance agents and the property/casualty insurance carriers with which they do business have long supported such legislation.

California, Florida, New York, Texas and Illinois are the states that generate the most premiums for surplus lines insurers, according to the Surplus Lines Stamping Office of Texas (SLSOT). Agents in those states may be particularly interested in what happens with this legislation.

SLSOT reported that surplus lines premiums filed with 15 state stamping offices across the nation were down by 8.2 percent nationally in 2008, compared with 2007. SLSOT attributed the drop to the lingering soft market but it pointed out that three stamping offices reported premium increases: Oregon, Pennsylvania and Utah.

Even with a decline, surplus lines still account for plenty of premium dollars: in 2007 the top 10 states for surplus lines represented more than $26 billion, according to SLSOT. Nationally surplus lines generated more than $38 billion in gross written premiums in 2007.