Surplus Lines Industry Enters New Era on Multistate Risks Taxes with NRRA Now Effective

Surplus lines brokers entered a new era on handling multistate risks on Thursday when the Nonadmitted and Reinsurance Reform Act (NRRA) became effective, and representatives of NAPSLO said the change reflects a long campaign to simplify the tax payment process on multistate risks.

"With the NRRA becoming effective on July 21 surplus lines brokers will see a system where there is one state compliance, one state taxation, national standards for company eligibility and national exempt commercial purchaser rules," said NAPSLO Executive Director Richard Bouhan. "These are issues the industry has been working on for a number of years and are pleased to see this law take effect."

While July 21st is an important day for the industry, because of the need to quote policies in advance a number of brokers have already been working under the new law. To assist brokers with the changes, NAPSLO has been providing information on the new law on its website.

“Brokers have been working for quite some time on policies that will be effective on July 21 or after, and so have already been operating under the new NRRA rules," said Mr. Bouhan. "In addition, it has been estimated that up to 95% of all surplus lines risks are single state risks so the NRRA may only impact a limited number of risks"

The NRRA mandates that beginning July 21, 2011 the insured's home state will be the only state with jurisdiction over multistate surplus lines transactions and the only state that can require a tax be paid by the broker. As a result states are bringing their laws into compliance and California and Texas are the most recent states to enact NRRA compliance legislation.

"NAPSLO applauds California and Texas for enacting their bill as it conforms the states' codes to the NRRA," said NAPSLO Legislative Co-Chair Hank Haldeman. "It was important for the largest surplus lines states to bring its laws into compliance prior to the NRRA's effective date."

Overall 43 states passed legislation to bring their state laws into compliance with the NRRA; three states (Iowa, Illinois and Colorado) adjourned without taking action; and four states (Michigan, Wisconsin Massachusetts, and South Carolina) and the District of Columbia have not passed any legislation. Of the 43 states, three states (Delaware, Oregon, and New Jersey) have approved legislation but the governors have not taken action on the bills.

In addition, six states have signed an agreement to be part of the Nonadmitted Insurance Multistate Agreement (NIMA) and nine states passed Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT) legislation.

"While a number of states have indicated a willingness to take part in a tax sharing compact, no compact is in operation," said Legislative Co-Chair Dave Leonard. “As of July 21st taxes on all surplus lines policies will be paid to the home state of insured and the home state becomes the sole regulator of the transaction."