Surplus lines execs search for common ground

News Currents

The independent nature of surplus lines professionals was readily apparent when a panel of industry executives gathered to discuss current issues at the recent National Association of Surplus Lines Offices convention, held in New Orleans in early October. About the only item they were in complete agreement on was that windstorm coverage should not be added to the National Flood Insurance Program. Beyond that, all bets were off.

The panel included: Neal Abernathy, CEO and president of Swett & Crawford; Steve DeCarlo, CEO of AmWINS Group Inc., Ronald Gabor of Gabor Insurance Services; Marshall Kath, CEO of Colemont Insurance Brokers; Dennis Crosby, CEO of ACE Westchester; Dale Pilkington, president of Colony Insurance Company; Thomas Mulligan, executive vice president of Western World Insurance Group; David Leonard, executive vice president of RSUI Group; and moderator Richard Bouhan, executive director of NAPSLO.

Federal legislation — theTerrorism Reinsurance Act (TRIA), possible government involvement in natural catastrophe coverage and surplus lines legislation currently being considered by Congress — inspired some of the most vigorous exchanges between panel members.

Swett & Crawford’s Abernathy said TRIA seems like it could work — adding it hopefully will never be tested — as it is a model in which the federal government provides a reinsurance backstop not insurance to the consumer. “The insured really doesn’t really care how the insurance company is protecting its balance sheet,” Abernathy said. “So whether it’s government backstopping the balance sheet of the insurance company or typical reinsurance, the consumer really doesn’t care.”

He said a similar model might work when it comes to protecting against natural disasters but cautioned, “How you structure it is critical. … If the federal government starts looking at becoming an insurer, where a thousand insureds or a hundred thousand insureds or several hundred thousand insureds are trying to go to the government to have their claims settled — there’s no way that is going to work.”

Mulligan said he was skeptical about any government intervention, in TRIA or anything else. He suggested federal participation might contribute to “a downward spiral where government catastrophe funds would further eliminate private funds from the marketplace and continue to further reduce the incentives to provide loss mitigation.”

It is human nature for people to want protection “against adverse outcomes,” Kath said. “We do it with our cars and with our homes. And whether it’s a national cat fund, whether it’s TRIA … the landscape is changing” as far as government involvement in insurance.

He noted the current debate on the health care.

“The health care issue for us in the U.S. is not going to go away. … It’s not going to be an if — it’s going to be a when. … And it will probably drive more of the feeling that people have that our government takes care of us on certain fundamental things, in their minds. I don’t necessarily embrace that philosophy but I do think it’s a macro trend that we can not ignore.”

Admitting the federal surplus lines reform legislation that passed the House earlier this year, H.R. 1065, was imperfect, both DeCarlo and Abernathy insisted that something must done about the issue of brokers with clients who have property in multiple states having to file and pay taxes each state.

“Surplus lines taxes — it’s a nightmare,” DeCarlo said. “You’re a GL guy, you’ve got risks in 50 states, you file in one state. Some-body needs to explain this to me. In property you file in 50 [states], GL you file in one. It doesn’t make sense to me.”

He added that his perspective is simple: “Tell me the rules, I’ll follow the rules.”

In DeCarlo’s view, H.R. 1065 seems to streamline a process that in its current form fairly guarantees that at some point a broker is going to be breaking the law of one state because the laws of individual states often oppose those of other states.

Abernathy agreed. We’re “breaking the law by definition when we get put in that situation,” he said. “There are laws in some states that say you’ve got to pay us all your tax for that account. Other states say you have to pay us as well — we’re going to break one of those laws. … Maybe [H.R. 1065] isn’t perfect, but something must be done.”

Gabor had serious issues with the language contained in the legislation. He likened it to a toy that looks great in the package but then “you unwrap it and a part falls off and you find out that this thing is going to kill a kid.” Gabor, who only writes business in Florida, said he agreed that the current multi-state taxing requirements need to be changed but maintained that H.R. 1065 doesn’t properly address the problem.

Topics Legislation Excess Surplus