Insurance associations representing brokers who sell excess andsurplus lines insurance say they will work aggressively this yearto get federal legislation reforming and modernizing the surpluslines market, as well as support from state agencies.

“We're working very hard to secure passage of legislation thatbrings the sales and regulatory process for surplus lines agentsand brokers into the 21st century,” said Mark Rothert, president ofRon Rothert, Insurance Services in Portland, Ore.

Mr. Rothert is also the senior vice president of the WesternRegion for the American Association of Managing General Agents,which is based in King of Prussia, Pa., and AAMGA board liaison tothe group's Governmental Affairs Committee.

“We're putting together a strong grass roots effort by askingour members to contact their representatives in the House andSenate about bills introduced in the two houses that accomplish ourgoals,” he said.

Richard Bouhan, executive director of the National Associationof Professional Surplus Lines Offices, Ltd. in Kansas City, Mo.,also said his group's top priority in the upcoming Congress will beto enact surplus lines reform legislation that will streamlinepremium tax payments and to simplify compliance requirements on theplacement of multistate surplus lines risks.

He noted that these reforms were contained in Title I of theNonadmitted and Reinsurance Reform Act which passed the Houseunanimously in both the 109th and 110th Congresses.

The latest bill, H.B. 1065, was passed by the House in February2008. The same bill, titled H.B. 5637, passed the House in2007.

A similar bill was introduced in the Senate, S. 929, but actionwas delayed after it got caught in the financial turmoil lastSeptember that forced Congress to focus on the Troubled AssetRelief Program before leaving last October with much unfinishedbusiness.

Mr. Bouhan said NAPSLO expects the 111th Congress to “engage ina vigorous debate over restructuring financial services regulation,which will include a discussion of a much larger federal role inregulating property-casualty insurance.”

He added that NAPSLO members and staffers “will convey tomembers of Congress the important role surplus lines plays inassuring consumers have insurance coverage available to them andwork to assure that this important supplemental market is preservedin any federal overhaul of financial services regulation.”

Mr. Bouhan also said that NAPSLO plans to work toward passage ofinsurance producer licensing reform legislation that eliminates redtape and facilitates the easy acquisition of nonresident licensesfor surplus lines brokers.

NAPSLO wants to “make certain that the surplus lines communityhas a voice in the implementation and governance of this process,”he said.

AAMGA's Mr. Rothert reported that members of Congress andlobbyists have told AAMGA “it is a little up in the air” whenCongress will deal with surplus lines reform, especially with thecongressional focused on fixing the economy. “It is our intent tobe on top of everything as best as we possibly can,” he said.

“We support either S. 929 or something new. It is our intent tobe at the forefront of efforts to modernize the system,” headded.

AAMGA also wants to see the equivalent of H.B. 1065 reintroducedin the House. “We've been speaking with a number of interestedcongressmen about this,” he said.

He said the group is also working with NAPSLO and lobbyists forthe Council of Insurance Agents and Brokers as part of a consortiumof interested insurance associations. “There is broad supportwithin the industry for these bills.”

Mr. Rothert cautioned that in all likelihood a new series ofhearings will have to be held in the House on the legislation, orif not in the House, at least in the Senate.

The passage of necessary surplus lines modernization legislation“has been and will remain the AAMGA's top priority,” he said.

AAMGA plans to “continue our work with the NAIC, the NationalCouncil of Insurance Legislators on modernizing state regulationwith respect to taxation of multistate surplus lines risk.”

In addition, he said, “there are some changes the NAIC istalking about in regard to uniformity in producer licensing,continuing education and other regulatory issues that cross overstate lines.”

As we meet with these regulators, said Bernd Heinze, AAMGAexecutive director, “our goal is to educate them on the unique andinnovative marketplace of the wholesale industry and to allowconsumers to have greater access and protections to the innovativelines of business that managing general agents like [Mr. Rothert]offer.”

Mr. Rothert added that AAMGA opposes any attempt to repeal theMcCarran-Ferguson Act, and also opposes any attempt by Congress toadd wind coverage to the National Flood Insurance Program.

“We very much support the continuation of the program butbelieve that wind coverage is already available in the privatesector or through existing state-supported pools,” Mr. Rothertsaid.

AAMGA also supports legislation recreating the NationalAssociation of Registered Agents and Brokers, legislation whichpassed the House last year Sept. 17 as H.R. 5611, too late foraction in the Senate. The bill would set up a national system tocreate uniform nonresident agent licensing.

As for NAPSLO, several state issues are on its agenda.

One issue is resolving the problems created for the industry bythe Essex v. Zota decision by Florida Supreme Court–a decision thatseems to make the surplus lines industry subject to the section ofthe Florida Insurance Code that regulates insurancecontracts/forms.

NAPSLO is seeking a legislative solution to the decision. NAPSLOlegislative director Steve Stephan said NAPSLO is working withstate and other national associations, the Florida InsuranceDepartment, and with Florida legislators “to clarify that thesurplus lines market has the freedom of form it requires to fulfillits role as a supplemental market for Florida insurance buyersunable to find coverage through standard admitted markets.”

Mr. Stephan said NAPSLO will continue to monitor the Silvers v.State Board of Equalization case in California. He said NAPSLObelieves that if the plaintiff prevails in this case, surplus linespremiums will be subject to the state's 2.5 percent premium tax inaddition to the 3 percent surplus lines tax which the law nowrequires be assessed to surplus lines policyholders.

“Such double taxation would be disastrous for buyers of surpluslines insurance [and] the overall California surplus lines market,”he said. “NAPSLO will take whatever action it can to help secure apositive decision for the surplus lines industry in thislitigation.”

As for state regulation, NAPSLO wants a more efficient“national” licensing system for surplus lines brokers and is askingthe NAIC to withdraw its position that nonresident surplus linesbrokers must also have a nonresident agent or broker license beforethe nonresident surplus broker license can be issued by astate.

“The result of this 'requirement' is that a surplus linesbroker, operating on a nationwide basis, may have to secure andmaintain up to 150 separate licenses to conduct surplus linesbusiness,” Mr. Stephan said. “Nonresident surplus lines licenseswere not available, except in six states, until after the enactmentof the Gramm-Leach-Bliley (GLB) Act in 1999, which was, in part,aimed at solving this lack of nonresident license availability,” hesaid.

“Unfortunately, as the NAIC and the states have implemented thenonresident surplus lines license provision of GLB, the 'cure' hasbecome worse than the disease,” he added.

“NASPLO wants to have the intent of GLB be fulfilled and therequirement for multiple nonresident licenses be eliminated,” heconcluded.

Mr. Stephan said NAPSLO will continue to urge that the NAIC andthe National Conference of Insurance Legislators endorse thesurplus lines interstate compact known a SLIMPACT in order tocreate an efficient, transparent and auditable system for paymentof surplus lines premium taxes, particularly on multistaterisks.

“SLIMPACT could also ease the burden of unnecessary multiplecompliance requirements for surplus lines multistate risks,” heargued. “SLIMPACT is compatible with and could be implemented inconjunction with the surplus lines reform legislation beingproposed in Congress,” Mr. Stephan said.