NIMA offering associate membership to states at no cost

The SLAS is used to process more than one-third of the nation's surplus lines premium, according to Scheiber's presentation. About 10 or so states, from California to New Jersey use the SLAS but are not part of NIMA. Scheiber expects more to join on.

He said he helped convince the SLAS folk that in order to grow and attract more states, they should offer the product at no cost for a year and get states to see how it could benefit them with actual monies and "accuracy, accuracy, accuracy." 

Additionally, NIMA states can review and regulate policy information submitted by brokers in real time using the Regulatory Administration Platform. This provides them with up-to-date, transaction-level information for multistate surplus-lines coverage written in their state.

Scheiber said he does not believe that the currently predominant home state tax allocation approach other states are using fulfills the spirit of the NRRA statute under the Dodd-Frank Act.

"It's not uniformity what we have now," Scheiber said. Groups that now support home state allocation, absent the national clearinghouse that was contemplated before Dodd-Frank was enacted as it is today, backed their approach.

After considering various approaches, the NAIC's old Surplus Lines Implementation Task Force opted to develop an interstate agreement, now known as NIMA, which states could enter into through enabling legislation and other statutory changes to allow full participation in the agreement. 

"The spirit of the law is that there should be one set of rules governing access to a multistate placement of a surplus lines product. In 46 jurisdictions, that's what we now have," said Joel Wood with the Council of Insurance Agents & Brokers (CIAB). CIAB members annually place more than 80 percent of all U.S. insurance products and services protecting industry, business, government and others, according to Congressional testimony. 

CIAB has been critical of NIMA's formula because it says it makes it more difficult and costly to comply rather than streamlining the whole tax payment process. The statute allows states to form a compact if they wish to share premium taxes or merely allow only the home state to impose taxes on a nonadmitted insurance transaction.

"When Congress considered putting a 'stick' in the law to entice all states into a clearinghouse – an approach we supported – states expressed opposition and Congress did not include such an incentive. In the absence of that, and considering the lack of interest in an allocation regime in the overwhelming majority of jurisdictions, we think the law's spirit is being well upheld with the current home-state mechanism," Wood said in response. 

"No matter how far-flung are an insured's operations, the home state – its "principle place of business" – is the location of its treasury and thus the risk itself," Wood added.

Brady Kelley, executive director for the National Association of Professional Surplus Lines Offices (NAPSLO), said that NAPSLO members continue to believe the cost of tax sharing will far exceed the reallocation of surplus lines tax dollars among any states participating in a tax sharing arrangement. 

Kelley has his own economic view of the allocations.

"When you break down the relatively low percentage of surplus lines premium on multistate risks, and further break down the proportion of multistate premium allocable outside the insured's home state, the resulting tax allocations become relatively immaterial," he said.

"In contrast, the home state tax approach is working in 46 states representing more than 80 percent of nationwide premium, creating significant efficiencies and dramatically reducing multistate tax filing and tax allocation issues for the surplus lines industry," Kelley said, who is a former CFO for the NAIC.

There are also nine states that have signed up for the Surplus Lines Multistate Compliance Compact (SLIMPACT), but Scheiber doesn't think it will get to 10.