To assist NAPSLO member surplus lines brokers to prepare to deal with the NonAdmitted and Reinsurance Reform Act (NRRA) when it takes effect on July 21, 2011, the Association has released guidelines produced by the law firm of Dewey & LeBoeuf LLP outlining broker responsibilities under the new federal law.
“While surplus lines brokers will benefit from the nationwide reforms that are intended to streamline excess and surplus lines insurance regulation, some states may not be in compliance with the NRRA when it takes effect, raising questions regarding a broker’s obligations under the new law,” said Richard Bouhan, NAPSLO Executive Director. “NAPSLO is issuing this general broker protocol to help brokers in all states understand what is required under the NRRA. While not a substitute for legal advice on specific situations, the guidelines will assist the broker in determining how to fulfill its obligations.”
The NRRA was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010 and the provisions to make the insured’s home state the only regulator of a surplus lines transaction takes effect on July 21.
NAPSLO contracted with Dewey & LeBoeuf LLP to produce the NRRA Broker Protocol, which reviews the federal law’s impact on surplus lines brokers. These guidelines state, in general, that for nonadmitted business, surplus lines brokers must:
• Be licensed for surplus lines in the insured's Home State
• Comply with the placement requirements of the insured’s Home State
• Ensure that a diligent search has been conducted in compliance with the rules of the insured’s Home State
• Provide any disclosure/disclaimer required by the insured's Home State
• Place surplus lines insurance with insurers that are eligible in the insured's Home State
• Satisfy a broker's general liability standards for determining that insurers are financially sound
• Comply with all other placement requirements of the insured's Home State, such as any regulation of policy fees or surplus lines broker premium trust accounts
Regarding surplus lines premium taxes, the guidelines note that as of July 21 surplus lines brokers must pay premium tax only to the insured's Home State. Brokers will need to comply with the tax payment and premium reporting requirements of the insured's Home State, including determining if the Home State has enacted a new multi-state tax sharing system. In addition, brokers should consult with NAPSLO if the Home State requests that brokers pay tax directly to other states or are asked to provide a report on multi-state risks more frequently than on an annual basis because more frequent reporting of this information is not permitted by the NRRA.
“All states are working on bringing their laws into compliance by July 21 but with a limited amount of time left in many legislative sessions it is unclear whether all states will be in compliance on the effective date,” said Mr. Bouhan. “With this information, and a state by state list of state actions available on our website, we are working to make sure members have the information they need to deal with the new law.”