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Dodd-Frank’s silver lining

{mosads}Thousands of people open insurance bills every day. Many routinely question why the cost of their policies continues to rise. One place that Congress sought to find answers was in the costs imposed by the insurance regulatory system. Specifically, efforts were aimed at addressing growing concerns about costs in the surplus lines market, generally referred to as the nonadmitted insurance market, and which represents more than $30 billion in insurance premiums.
The subtitle, known as the “Nonadmitted and Reinsurance Reform Act” (NRRA), establishes a national framework to bring about greater consistency and efficiency to the taxation and regulation of surplus lines insurance. Insurance oversight in the U.S. is a multifaceted web of more than 50 separate state-based systems, each with unique laws, procedures, regulations and established by individual state legislatures and insurance commissioners. That means an insurer writing insurance nationally must maintain knowledge and comply with 50 unique sets of insurance rules and regulations. While the insurance industry generally supports state-based insurance regulation, the rules and statutes applicable to the taxation, regulatory and licensing requirements are inconsistent, complex, and, at times, duplicative for surplus lines business. Dodd-Frank set out to address a full range of regulatory issues to the benefit of surplus lines consumers, insurers, and brokers alike.
Surplus lines insurers are a vital to the insurance buying public. Essentially, surplus lines cover the needs of consumers and businesses that are unable to secure coverage from the standard, admitted carriers licensed in their state. Surplus lines insurers provide coverage when the insurable exposures are unusually risky or have a very large potential for loss. For example, coastal properties often only find coverage in the surplus lines market because of the high risk associated with weather-related catastrophic events. In addition, coverage for the liability exposure for many professional occupations, such as doctors, pilots or emergency responders, is often unavailable in the standard market due to state regulations and the complexity of the insurable product.
In Dodd-Frank, the NRRA established a uniform set of terms and definitions, a single set of standards for surplus lines insurer eligibility, and a single national producer database to maintain the licensure filings of agents and brokers. For policies with insured exposure in multiple states, the law mandates that only the home state of the insured (state of residence or headquarters) may require premium tax payment. A national standard will eliminate the regulatory inefficiencies found within the marketplace and will untangle the complex web — a critical step to securing a stable, sustainable future for the industry.
To fully achieve the benefits of the NRRA, individual state legislatures and regulators must consistently adopt and implement the letter and spirit of the law. In an economic climate currently dominated by desires to cut costs, insurance modernization can save money and strengthen our economy, while maintaining consumer protection. Consider the millions of dollars companies spend in licensing fees, personnel, programming costs, and other resources devoted to compliance and data gathering for duplicative initiatives with questionable usefulness. Reducing these costs can allow surplus lines insurers to focus more of those resources and attention on making insurance more affordable and available for consumers.
Mulligan is president and CEO of the Western World Insurance Group.


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