Understanding the Nonadmitted and Reinsurance Reform Act of 2010

The Nonadmitted and Reinsurance Reform Act of 2010 was a significant piece of legislation that aimed to bring transparency and accountability to the nonadmitted insurance market. This market had long been plagued by a lack of regulation and oversight.

The Act was enacted on July 21, 2010, and it established a national standard for the nonadmitted insurance market. This standard required nonadmitted insurers to register with the state insurance department and to provide certain information to policyholders.

The Act also created a national database of nonadmitted insurers, which is maintained by the National Association of Insurance Commissioners (NAIC). This database allows policyholders to search for nonadmitted insurers and to verify their registration status.

The Nonadmitted and Reinsurance Reform Act of 2010 was a major step forward in regulating the nonadmitted insurance market and providing greater protections for policyholders.

Nonadmitted insurance is a type of insurance that can be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance. Nonadmitted insurers are those not licensed or authorized to engage in the business of insurance in a state.

Nonadmitted insurance includes three major categories: surplus lines insurance, directly-procured insurance, and reinsurance. Surplus lines insurance is typically provided by an unadmitted, out-of-state insurer for risks deemed too great for full insurance by more traditional insurers.

A person buying surplus lines insurance usually must go through a state-regulated insurance broker/agent to buy it. This is because surplus lines insurance is often a supplement to limited insurance coverage available from standard insurers.

The NRRA defines "nonadmitted insurance" but does not apply to workers' compensation insurance, excess insurance for self-funded workers' compensation plans with a nonadmitted insurer, or risk retention groups. Nonadmitted insurance is not defined by the NRRA, but it is understood to include surplus lines insurance, directly-procured insurance, and reinsurance.

The Delaware Nonadmitted Insurance Act regulates the placement of insurance coverage with nonadmitted insurers when the state is the home state of the insured. This regulation is aimed at ensuring that nonadmitted insurers comply with state laws and regulations.

A person must meet certain qualifications to be eligible to place nonadmitted insurance, including having at least 7 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance.

After NRRA's passage, two competing compacts emerged: the Surplus Lines Multistate Compliance Compact and the Nonadmitted Insurance Multi-State Agreement.

These compacts were formed in the early years following the NRRA's implementation, indicating a need for standardized compliance measures across states.

The Surplus Lines Multistate Compliance Compact, or SLIMPACT, was one of the two competing compacts that arose in the wake of NRRA's passage.

In the early years after NRRA's passage, two competing compacts or agreements emerged: the Surplus Lines Multistate Compliance Compact and the Nonadmitted Insurance Multi-State Agreement.

SLIMPACT, one of these compacts, was proposed as a method of implementing the NRRA. It was drafted with input from over 60 insurance professionals representing various state regulators, tax officials, legislators, stamping officers, surplus lines brokers, and trade associations.

The National Conference of Insurance Legislators initially supported and spearheaded the SLIMPACT concept. SLIMPACT would have established a commission with significant authority, including the power to adopt mandatory rules and operating procedures.

These rules would have covered uniform eligibility requirements for foreign insurers, a uniform policyholder notice, and uniform treatment of purchasing group nonadmitted insurance placements. The commission would also have had the authority to establish tax allocation formulas.

Nine states have enacted legislation to join SLIMPACT: Kentucky, New Mexico, North Dakota, Indiana, Kansas, Vermont, Rhode Island, Alabama, and Tennessee. However, the member states eventually opted to dissolve SLIMPACT due to concerns over its constitutionality.

Compliance with Federal Statutes is a crucial aspect of any project. The Federal Acquisition Regulation (FAR) sets forth the policies and procedures for federal acquisitions.

The FAR requires contractors to comply with various federal statutes, including the Davis-Bacon Act, which requires payment of prevailing wages to laborers and mechanics on federal contracts.

Contractors must also comply with the Service Contract Act, which requires payment of prevailing wages and benefits to service employees on federal contracts. This includes service contracts that exceed $2,500 in value.

The FAR also requires contractors to comply with the Fair Labor Standards Act, which sets forth minimum wage and overtime requirements for employees.

Eligibility requirements are crucial for nonadmitted insurers in the United States. A state may not impose eligibility requirements on nonadmitted insurers domiciled in a US jurisdiction, except in conformance with specific sections of the NAIC's Non-Admitted Insurance Model Act.

This means that states have limited flexibility in setting eligibility criteria for nonadmitted insurers. However, states can adopt nationwide uniform requirements, forms, and procedures that include alternative nationwide uniform eligibility requirements.

Surplus line brokers are also exempt from certain restrictions. They are allowed to place nonadmitted insurance with nonadmitted insurers domiciled outside the US, as long as the insurer is listed on the quarterly listing of alien insurers maintained by the NAIC's International Insurers Department.

Eligibility requirements for nonadmitted insurers are governed by specific rules. A state may not impose eligibility requirements on nonadmitted insurers domiciled in the United States, except in conformance with certain sections of the NAIC's Non-Admitted Insurance Model Act.

A state can't prohibit surplus line brokers from placing nonadmitted insurance with nonadmitted insurers domiciled outside the United States, as long as those insurers are listed on the quarterly listing of alien insurers maintained by the NAIC's International Insurers Department.

In addition, states can't establish eligibility criteria for nonadmitted insurers that aren't in line with the NAIC's model act, unless they've adopted nationwide uniform requirements, forms, and procedures that include alternative nationwide uniform eligibility requirements.

Here are some key points to keep in mind:

An exempt commercial purchaser is a type of buyer who is exempt from certain tax obligations. This exemption applies to buyers who make purchases for resale or other business purposes.

To qualify as an exempt commercial purchaser, you must provide a valid resale certificate, also known as a sales tax exemption certificate, to the seller. This certificate is usually issued by the state where you operate your business.

In some states, exempt commercial purchasers are required to file a separate return or report their exempt purchases. For example, in California, exempt commercial purchasers must file a separate return with the California Department of Tax and Fee Administration.

Exempt commercial purchasers are not required to pay sales tax on their purchases, but they must still collect and remit sales tax on their own sales to customers.

The Nonadmitted and Reinsurance Reform Act of 2010 introduced new regulations for nonadmitted insurance, which varies by state.

Some states, like California, have their own nonadmitted insurance laws and regulations, while others follow the federal guidelines.

In California, for example, nonadmitted insurance is regulated by the California Department of Insurance.

The Act also established a national database to track nonadmitted insurance policies, which helps to prevent fraud and ensure compliance.

This database is maintained by the National Association of Insurance Commissioners (NAIC).

States like New York have their own unique requirements for nonadmitted insurance, including specific forms and filings.

In New York, nonadmitted insurance carriers must file a notice of intention to write nonadmitted insurance with the New York State Department of Financial Services.

The Act also requires that nonadmitted insurance policies be clearly labeled as nonadmitted, to avoid confusion with admitted insurance policies.

This labeling requirement is intended to protect consumers and prevent misrepresentation.