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5.4 State-Based Insurance Reform

<< Title V Overview

5.4 State-Based Insurance Reform

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5.4.       State-Based Insurance Reform.  These provisions are designed to increase efficiency, reduce transaction costs, and improve customer access in the multi-state property and casualty insurance market and to reform the regulation of the reinsurance markets.  The insurance activities that are the subject of these provisions were not identified as a cause of the financial crisis that gave rise to the Act in general.  Rather the state-based insurance reform provisions reflect long-standing legislative efforts by the insurance companies and brokers that participate in these markets, which have now been swept into the general financial reform legislation.  With certain exceptions, this Act takes effect 12 months after the date of enactment.

The provisions use the following terms: (i) "nonadmitted insurer" is an insurer not licensed to engage in the business of insurance in a state; (ii) "nonadmitted insurance" is property and casualty insurance placed with a nonadmitted insurer; and (iii) "surplus lines broker" is an individual or firm licensed in a state to sell insurance on properties or risks located in a state with nonadmitted insurers.  [§527]

Within 30 months of enactment the General Accounting Office must complete a study and report to Congress on the effect of the Act on the size and market share of the nonadmitted insurance market for providing coverage typically provided by the admitted insurance market. 

 

5.4.1.    Nonadmitted Insurance

5.4.1.1.             Reporting, Payment, and Allocation of Premium Tax.  No state other than the home state of an insured may impose premium taxes on nonadmitted insurance, although states may enter into compacts or establish procedures for allocation of premium taxes paid to the insured's home state among the states subject to the compact or procedures.  [§521]

5.4.1.2.             Regulation of Nonadmitted Insurance by Insured's Home State.  Placement of nonadmitted insurance is subject only to the statutory and regulatory requirements of the insured's home state.  Only the home state may require a surplus lines broker to be licensed in order to sell, solicit, or negotiate nonadmitted insurance with respect to the insured.  Any law, regulation, or action of any state that purports to apply to nonadmitted insurance sold to, solicited by, or negotiated with an insured whose home state is another state will be preempted with respect to such application.  However, these restrictions do not apply to rules that restrict the placement of workers' compensation insurance or excess insurance for self-funded workers' compensation plans with a nonadmitted insurer.  [§522]

5.4.1.3.             Participation in National Producer Data Base.  After two years from the date of enactment, a state may not collect fees relating to licensing of an individual or entity as a surplus lines broker in the state unless the state has in effect laws that provide for participation by the state in the national insurance producer database of the National Association of Insurance Commissioners ("NAIC") for the licensure of surplus lines brokers and the renewal of such licenses.  [§523]

5.4.1.4.             Uniform Standards for Surplus Lines Eligibility.  A state may not: (i) impose eligibility requirements for nonadmitted insurers domiciled in a U.S jurisdiction, except in accordance with nationwide uniform requirements; or (ii) prohibit a surplus lines broker from placing nonadmitted insurance with or procuring nonadmitted insurance from a nonadmitted insurer domiciled outside the United States if the broker is listed on the Quarterly Listing of Alien insurers maintained by the International Insurers Department of the NAIC.  [§524]

5.4.1.5.             Streamlined Application for Commercial Purchasers.  A surplus lines broker seeking to procure or place nonadmitted insurance in a State for an exempt commercial purchaser will not be subject to certain state due diligence requirements, subject to certain disclosures and procedural requirements.  [§525]

5.4.1.6.             GAO Study and Report on Nonadmitted Insurance Market.  The Comptroller General of the United States is directed to conduct a study of the nonadmitted insurance market to determine the effect of the Act on the size and market share of the nonadmitted insurance market for providing coverage typically provided by the admitted insurance market.  In conducting the study, the Comptroller General will consult with the NAIC.  The Comptroller General will complete the study and submit a report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services not later than 30 months after the effective date of the Act.  [§526]

5.4.2.    Reinsurance

5.4.2.1.             Regulation of Credit for Reinsurance and Reinsurance Agreements.  No state may deny credit for reinsurance if the domiciliary state of a ceding insurer is an NAIC-accredited state, or has substantially similar financial solvency requirements as for NAIC accreditation, and recognizes credit for reinsurance for the insurer's ceded risk.  Laws of a state that is not the domiciliary state of the ceding insurer (other than laws for taxes and assessments on insurance companies or insurance income) are preempted to the extent specified in the Act.  [§531]

5.4.2.2.             Regulation of Reinsurer Solvency.  If the domiciliary state of a reinsurer is an NAIC-accredited state, the state will be solely responsible for regulating the financial solvency of the reinsurer.  No other state may require the reinsurer to provide additional financial information, although the state may receive a copy of any financial statement filed with the home state.  [§532]