Compact on Surplus Lines Insurance Nears Next Steps
By Crady deGolian, Director of CSG’s National Center for Interstate Compacts
Only one more state must approve a multi-state agreement that would ensure states are in compliance with an important section of the Dodd-Frank Wall Street Reform and Consumer Protection Act for it to move forward.
The Surplus Lines Multistate Compliance Compact, known as SLIMPACT, is designed to create uniformity within the surplus lines insurance industry. Nine states adopted the legislation during the 2011 legislative sessions; 10 states must approve the compact to reach critical mass. That means the SLIMPACT commission will be able to formally engage in rule-making and form the clearinghouse.
The compact—which was developed jointly by The Council of State Governments’ National Center for Interstate Compacts, the National Conference of Insurance Legislators and industry representatives—would ensure states are in compliance with the Nonadmitted and Reinsurance Reform section of the Dodd-Frank legislation.
Surplus lines insurance is coverage that is not normally available from licensed providers within a state; it must be purchased from a non-admitted carrier on the surplus lines market. Consumers may need to purchase a surplus lines insurance policy if they have unique needs, such as commercial general liability insurance, fire insurance, mobile home policies, automobile physical damage coverage and medical malpractice insurance.
Hawaii Sen. Rosalyn Baker introduced Senate Bill 2168 Jan. 20, making Hawaii the first state to file SLIMPACT legislation this session. The state’s Commerce and Consumer Protection Committee will consider the bill in early February. Several other states are considering filing SLIMPACT legislation. To reach 10 states in less than two legislative sessions would represent a major accomplishment for an interstate compact.
“… There is a real chance that SLIMPACT will achieve the 10 necessary states required for activation very soon,” said Kentucky Rep. Bob Damron, sponsor of SLIMPACT legislation in Kentucky and chair of CSG’s Finance Committee. “This will allow the commission to actively engage in rule-making and formally adopt an allocation formula. It will also represent a tremendous accomplishment, ensure compliance with Dodd-Frank and serve as a testament to my colleagues around the states and the power and importance of interstate compacts.”
The SLIMPACT Commission has begun operating on a limited basis to ensure a quick transition from the adoption phase to commission business once the 10-state threshold is met. Kentucky Insurance Commissioner Sharon P. Clark has been appointed interim chair of the commission and staff from CSG’s National Center for Interstate Compacts is assisting the new commission on an interim basis.
The commission is expected to adopt rules and bylaws once the compact meets critical mass and consider an allocation for the payment and collection of surplus lines premium taxes proposed by the Kentucky Department of Insurance.
SLIMPACT enjoys wide-ranging industry support and has been endorsed by the National Association of Professional Lines Insurers. In addition, the memberships of CSG, NCOIL and the National Conference of State Legislators have endorsed SLIMPACT. It is the only proposal to have received the endorsement of industry and the various state legislative organizations around the country.
Thus far, Alabama, Indiana, Kansas, Kentucky, New Mexico, North Dakota, Rhode Island, Tennessee and Vermont have adopted the compact.