Libby Baney Expresses Optimism on Insurance Reform Package

The Senate is expected to move on legislation (S. 1363) that would simplify the nonadmitted insurance, or surplus lines, market and the reinsurance market in part by giving sole tax collection and regulatory authority of multistate policy risks to the policyholder's home state, according to stakeholders, BNA reported in its story, "Senate Seen Acting on Bill on Taxation of Nonadmitted Insurance, Reinsurance." In recent interviews with BNA, stakeholders said the legislation could advance in the Senate within a larger Senate regulatory reform bill.

Libby Baney of B&D Consulting — on behalf of the National Association of Professional Surplus Lines Offices (NAPSLO) Ltd., a national trade association for the industry — expressed optimism that the legislation would be incorporated into one of the titles of the reform package, based on conversations with congressional staff, the story reported.

The Sept. 9 passage of the House companion bill (H.R. 2571) marks the third time such legislation has cleared the chamber, but Baney told BNA that the Senate bill has never advanced beyond discussion at a Banking hearing on regulatory reform despite widespread congressional and industry support (173 DTR G-3, 9/10/09).

Even a state-oriented organization — the National Association of Insurance Commissioners, representing the insurance regulators for all 50 states and the District of Columbia — supports the bill's language on surplus lines transactions, Baney said in the story.

Surplus lines and reinsurance premiums are subject to varying state tax formulas, but both the Senate and House bills would give the policyholder's home state, rather than the state where their surplus line insurer or reinsurer is located, authority over the collection and allocation of their taxation, the BNA reported.

A surplus lines broker, for instance, would work to secure a surplus lines insurer for multistate clinical trials, Baney said in the story. She said the broker would face a number of state jurisdiction — the policyholder's home state as well as each state where the trials were to occur — and their corresponding, contradictory tax rates when it came time to remit taxes. The legislation would give the sole collection authority over premium taxes to the policyholder's home state, but it is not intended to prevent other states from their due share of the revenue pool.

The legislation only decides "who will be the initial collector of the tax," Baney said in the BNA story. The policyholder's home state would tax the premium and then would be expected to remit portions of the premium to the other states that assumed the insurance risks, she added.

For instance, a multistate clinical trial based in Indiana, with policies taken out in Michigan and Illinois, would render the state of Indiana in charge of collecting 100 percent of the surplus line's premium taxes, Baney said. If Michigan assumed 15 percent of the risk and Illinois assumed 35 percent, Indiana would have to "reallocate" the corresponding percentages of the total revenue collected to those states, she said.

The legislation encourages, but does not require, the states to establish revenue-sharing arrangements, Baney said, because mandating such arrangements would be a constitutional question beyond the scope of the law. "The States may enter into a compact or otherwise establish procedures to allocate among the States the premium taxes paid to an insured's home State," the text of the legislation said.