On March 18, 2011, Governor John Kasich signed House Bill 122 (HB 122), legislation that conforms Ohio’s law regulating surplus lines products with the federal Nonadmitted and Reinsurance Reform Act (NRRA).
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama on July 21, 2010. Incorporated into the law was language addressing excess and surplus lines insurance, the NRRA. The NRRA by its various provisions will preempt or supersede portions of the excess and surplus lines law as they exist today in the states.
Of particular significance to states, on July 21, 2011, when most of the provisions of the NRRA take effect, only the “home state” of the insured will be authorized to tax a surplus lines transaction, and the state will not be able to allocate the tax revenue unless the state adopts an interstate compact or other uniform, national tax allocation procedures. This leaves little time for states to amend their excess or surplus lines insurance statutes to confirm to the mandatory provisions and definitions contained in the NRRA. Failure to modernize this important area of insurance regulation may result in the loss of valuable premium dollars and could add momentum to proponents of a greater federal role in the regulation of the insurance industry.
Accordingly, the Surplus Lines Insurance Multi-State Compliance Compact (referred to as SLIMPACT-Lite) was drafted with input from state regulators, state legislators, industry trade organizations and others. SLIMPACT-Lite, which has been formally endorsed by the National Conference of Insurance Legislators (NCOIL), the National Conference of State Legislatures (NCSL), Council of State Governments (CSG), will streamline regulatory requirements by providing for:
- Uniform premium tax allocate formulae;
- A clearinghouse to facilitate the correct calculation and reporting of premium taxes due to the compacting states; and
- An improved coordination of regulatory recourses and expertise between state insurance departments and other state agencies, as well as state surplus lines stamping offices.
HB 122 specifies that Ohio’s law regarding surplus lines insurance and surplus lines brokers applies only when Ohio is the home state of the insured and allows the Director of the Ohio Department of Insurance to enter into SLIMPACT-Lite if advantageous to Ohio. Prior to entering into the interstate compact, the bill requires the Ohio Director to conduct a fiscal analysis of the impact of entering into a compact or multi-state agreement (or the Nonadmitted Insurance Multi-State agreement, referred to as NIMA). If the Ohio Director finds that it is in Ohio’s financial best interest to enter into a multi-state agreement – rather than a compact – the Directors must go back to the Ohio General Assembly and receive authorization to enter into a multi-state agreement.
HB 122 also:
- Makes changes to the surplus lines broker, individual procurement, and unauthorized insurer taxes while maintaining current law’s 5% tax on gross premiums (ORC 3905.36);
- Allows the Ohio Director to waive the late tax penalty in certain situations (ORC 3905.17 and 3905.36);
- Exempts from the tax requirements insureds that are otherwise exempt from the payment of premium or franchise taxes under state or federal law and political subdivisions (ORC 3905.36);
- Revises the surplus lines broker record filing requirements (ORC 3905.34);
- Allows only licensed property and casualty agents to perform due diligence requirements (ORC 3905.33);
- Clarifies the due diligence requirements for both insurance agents and surplus lines brokers (ORC 3905.33 and 3905.331); and
- Removes an exemption from Ohio’s service of process requirements for contracts issued to an employer insured (ORC 3901.17).
The bill becomes effective in 90 days.