On Tuesday, May 22, 2012, NIMA participating states adopted a premium allocation method for distributing surplus lines premium taxes on casualty insurance that streamlines the allocation and distribution process of surplus lines premium taxes for surplus lines brokers and member states and positions NIMA to launch its Surplus Lines Clearinghouse on July 1, 2012.
The allocation methodology is based on a proposal initially created by the Kentucky Department of Insurance. The "Kentucky Proposal" excludes the majority of casualty surplus lines premium from multi-state allocation. Therefore, the home state continues to collect most surplus lines tax for casualty insurance unless a casualty policy is rated on a state or location-specific basis.
"In the spirit of compromise, NIMA members have once again worked together to integrate the best ideas of its members to create a streamlined process consistent with the provisions of Dodd-Frank," stated Florida Insurance Commissioner Kevin McCarty. "I am hopeful that other states that have supported the Kentucky proposal in the past will recognize this achievement, and consider joining NIMA."
The primary advantages of this approach include increasing uniformity among states, streamlining the filing process for multi-state taxes, and making it easier for insurance brokers to transition to the new system. The new allocation methodology does not require brokers to collect any additional data elements at the time of policy issuance.
"Over the past several months, the NIMA states have engaged our brokers in a discussion regarding the allocation method that will be used for premium tax allocation," said Merle Scheiber, Director of the South Dakota Division of Insurance. "The feedback we received indicated the 'Kentucky Proposal' was the best option for our brokers. The NIMA states respected that feedback and took decisive action to work with our brokers."
The Florida Surplus Lines Service Office (FSLSO), which was awarded the service and license agreements to act as the Surplus Lines Clearinghouse for NIMA, has given assurances to NIMA, Inc. that these changes to the premium allocation methodology could easily be incorporated into the current system by the time for the Surplus Lines Clearinghouse launch date of July 1, 2012.
The proposal is supported by the National Association of Professional Surplus Lines Offices (NAPSLO) and states that joined the Surplus Lines Multistate Compliance Compact (SLIMPACT) as well as several trade and industry groups. NIMA members will meet on Tuesday, May 29 to incorporate the Kentucky Proposal to make corresponding revisions to the NIMA Exposure Allocation Methodology, and officially amend the NIMA Agreement.