Regulation of Surplus Lines Insurance

Surplus lines insurance regulation differs from other insurance regulation both in substance and in the primary focus. In regulating regular insurance transactions, much of the state's focus is on the insurer itself. To operate as a surplus lines broker, most states require an additional license on top of the license required for insurance brokers in general. At this point, while the consumer is outside of the regular insurance market, the states generally continue to establish standards to protect consumers against surplus lines insurers who might be unable to pay claims that are made. In addition, the National Insurance Act would have preempted state laws requiring product and price approvals for federally chartered insurers. The bill's first two sections would have given preeminent regulatory and tax authority to the home state of the insured, preempting the tax and regulatory laws of other states who might have a claim on the insurance transaction such as the home state of the broker or the location of some of the insured risk. H.R. The bill was considered under Suspension of the Rules on June 25, 2007, and passed the House by voice vote. S. 929 also entitled the Nonadmitted and Reinsurance Reform Act of 2007, was introduced in the Senate on March 20, 2007, by Senators Mel Martinez and Bill Nelson. 5637 as passed by the House during the 109 th Congress. It was referred to the Senate Banking, Housing, and Urban Affairs Committee as was H.R. Neither bill was acted on by the Senate in the 110 th Congress. 111th Congress

			The Nonadmitted and Reinsurance Reform Act of 2009 (H.R. H.R. 1065 , which passed the House in the 110 th Congress. 2571 as a floor amendment to the Wall Street Reform and Consumer Protection Act of 2009 ( H.R. 4173 ). This language was included in an en bloc amendment by Representative Barney Frank ( H.Amdt. 4173 passed the House on a vote of 223-202 on December 11, 2009, with the language included as Title IX. The committee did, however, markup and order reported the Restoring America's Financial Stability Act of 2010 on March 22, 2010. Title V, Subtitle B of this bill is entitled the Nonadmitted and Reinsurance Reform Act of 2010 and contains language nearly identical to S. 1363 . The bill was reported as S. 3217 on April 15, 2010; after various floor amendments, none of which altered Title V, Subtitle B, the Senate inserted the language of S. 3217 into H.R. The House agreed to the conference report on June 30, 2010, by a vote of 237-192 and the Senate agreed to the conference report on July 15, 2010, by a vote of 60-39. President Obama signed the legislation into law as P.L. 111-203 on July 21, 2010. The National Insurance Consumer Protection Act (H.R. 1880)

H.R. This bill includes language similar to the previous National Insurance Act of 2007 that would (1) include surplus lines insurance under the definition of an "insurance producer" and allow a national agency to sell surplus lines insurance and (2) allow only the state in which an insured party resides or maintains its principal place of business to tax a surplus lines transaction. 1880 allows for the federal chartering of insurers and insurance producers and loosens some restrictions on insurance rate and form regulation, so it might have an impact on surplus lines insurance as some insurers and producers may choose to become federally chartered, rather than remaining state-chartered surplus lines insurers.
In general, insurance is a highly regulated financial product. Every state requires licenses for insurance companies, and most states closely regulate both company conduct and the details of the particular insurance products sold in the state. This regulation is usually seen as important for consumer protection; however, it also creates barriers to entry in the insurance market and typically reduces to some degree the supply of insurance that is available to consumers. Rather than requiring consumers who may be unable to find insurance from a licensed insurer to simply go without insurance, states have allowed consumers to purchase insurance from non-licensed insurers, commonly called nonadmitted or surplus lines insurers. Although any sort of insurance could be sold by a surplus lines insurer, most such transactions tend to be for rarer and more exceptional property and casualty risks, such as art and antiques, hazardous materials, natural disasters, amusement parks, and environmental or pollution risks.
Although surplus lines insurance is sold by insurers who do not hold a regular state insurance license, it is not unregulated. The sale of this insurance is regulated and taxed by the states largely through requirements placed on the brokers who usually facilitate the insurance transactions. The varying state requirements for surplus lines insurance have led to calls for greater harmonization between the states' laws and for federal intervention to promote uniformity. Such federal intervention is the central focus of the Nonadmitted and Reinsurance Reform Act of 2009 (H.R. 2571/S. 1363), which passed the House by voice vote on September 9, 2009. This act was also added as an amendment to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) when it was considered on the House floor. H.R. 4173 passed the House on December 11, 2009. The Restoring America's Financial Stability Act of 2010 (S. 3217) included nearly identical language as well. This legislation was reported by the Senate Committee on Banking, Housing, and Urban Affairs on April 15, 2010, and subsequently brought to the Senate floor for consideration. On May 20, 2010, the Senate finished consideration, inserting the amended text of S. 3217 into H.R. 4173 and passing the amended H.R. 4173. The Nonadmitted and Reinsurance Reform Act language was included in the H.R. 4173 conference report, which was agreed to by the House on June 30, 2010, and by the Senate on July 15, 2010. President Obama signed the legislation, now P.L. 111-203, on July 21, 2010.
Provisions aimed at harmonizing state laws regarding surplus lines insurance were also included in the National Insurance Consumer Protection Act (H.R. 1880), whose central focus is the creation of a federal charter for the insurance industry when this bill was introduced on April 2, 2009.
Past Congresses have also taken up legislation on surplus lines insurance. Versions of the Nonadmitted and Reinsurance Reform Act were passed by the House in both the 109th and 110th Congresses, but the Senate did not act on surplus lines legislation in either case. Provisions on surplus lines insurance similar to those in H.R. 1880 were included in the National Insurance Act of 2007, but that bill was not acted on in the 110th Congress.
This report will be updated as warranted by legislative events.