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The Nonadmitted and Reinsurance Reform Act of 2010 is a United States law regulating the sale of insurance in states where the insurer is usually not authorized to sell insurance. It prevents states other than the home state of a U.S. insurance company from imposing regulations or taxes on the sale of nonadmitted insurance.
On July 21, 2010, President Barack Obama signed into law the federal Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), which contains the Nonadmitted and Reinsurance Reform Act of 2010 ("NRRA"). [1] The NRRA applies to nonadmitted insurance, which includes surplus line insurance and directly-procured insurance, and to reinsurance.
The NRRA took effect on July 21, 2011 and generally provides that the placement of nonadmitted insurance will be regulated by an insured's home state, and that no other state may require a surplus lines broker to be licensed to sell, solicit, or negotiate nonadmitted insurance with respect to the insured. The NRRA preempts state laws with respect to nonadmitted insurance, but does not affect regulation of insurance offered by insurers licensed or authorized in a state. [2]
The NRRA defines "nonadmitted insurance" as "any property and casualty insurance permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance." [3] A nonadmitted insurer is an insurer not licensed or authorized to engage in the business of insurance in a state. [4] The NRRA does not define "property and casualty insurance" and does not apply to workers' compensation insurance, excess insurance for self-funded workers' compensation plans with a nonadmitted insurer, or risk retention groups.; [5] [6]
Nonadmitted insurance includes three major categories: surplus lines insurance, directly-procured insurance, and reinsurance.
Surplus lines insurance is insurance—typically 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 does so as a supplement to whatever limited insurance coverage for that risk is available from standard insurers, and typically must go through a state-regulated insurance broker/agent to buy it. [7]
Directly-procured insurance is insurance that a person buying insurance purchases directly from an insurer rather than through an insurance broker. [8]
Reinsurance is insurance that an insurance company purchases from another insurance company to partly insulate itself from the risk of a major claims event. With reinsurance, the company passes on some part of its own insurance liabilities to the other insurance company so that if a major client makes a large claim the company will be able to meet its payment obligations and still remain in business.
The NRRA defines "home state" as: (1) the state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal residence; or (2) if 100% of the insured risk is located out of the state, the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated. [9] If more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the term "home state" means the home state, as determined pursuant to the foregoing, of the member of the affiliated group that has the largest percentage of premium attributable to it under the insurance contract. [10] The NRRA defines "state" as any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and American Samoa. [11]
The NRRA does not define "principal place of business", "principal residence", provide for a circumstance when the insured's principal place of business or principal residence is located outside of the United States, or address how the insured's home state is determined when there is a group insurance policy.
It was Congress' intent that each state adopt nationwide uniform requirements, forms, and procedures that provide for the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance. [12]
In the early years after NRRA's passage, there were two competing compacts or agreements: the Surplus Lines Multistate Compliance Compact ("SLIMPACT") and the Nonadmitted Insurance Multi-State Agreement ("NIMA").
SLIMPACT was proposed as a method of implementing the NRRA. SLIMPACT 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 ("NCOIL") initially supported and spearheaded the SLIMPACT concept.
SLIMPACT would have established a commission that has the power, among other things, to adopt mandatory rules and operating procedures that are binding on the compacting states, such as rules regarding uniform eligibility requirements for foreign insurers to be able to place nonadmitted insurance in a state (i.e., minimum capital and surplus, trust funds, etc.); a uniform policyholder notice; and uniform treatment of purchasing group nonadmitted insurance placements. [13] The commission also would have had the authority to establish and adopt rules regarding tax allocation formulas, as well as to establish an executive committee, operations committee, legislative committee, and advisory committees. [13] The membership of these committees could have included executives and attorneys employed by surplus lines insurers, nonadmitted insurance licensees, law firms, representatives of state insurance departments, and representatives of state stamping offices. [13] SLIMPACT further would have permitted the commission to accept any and all appropriate donations and grants of money (including donations and grants of money from surplus lines insurers and brokers) so long as the commission avoids any appearance of impropriety or conflict of interest. [13]
SLIMPACT would have applied to all kinds of nonadmitted insurance and would not have been limited to property and casualty insurance. [13] SLIMPACT also would have established a uniform definition of "principal place of business", but not "principal residence" as used in the definition of "home state." [13] SLIMPACT did not provide for a situation in which the insured's principal place of business or principal residence is located outside the United States or explain how the insured's home state is to be determined when the policy is a group policy. [13] Nor did SLIMPACT address, with regard to tax collection and allocation, the situation in which there is a multi-state risk and the insurer is an admitted insurer in one or more states. [13]
Nine states have enacted legislation that would enable them to join SLIMPACT: Kentucky, New Mexico, North Dakota, Indiana, Kansas, Vermont, Rhode Island, Alabama, and Tennessee. [14] States such as Florida, California, and New York questioned the constitutionality of a compact that cedes a state legislature's substantive rule-making authority to a commission or any other body.; [15] [16] However, since ten states were required for ratification, the member states eventually opted to dissolve SLIMPACT. [17] [18]
The National Association of Insurance Commissioners ("NAIC") and state regulators drafted a competing agreement called NIMA. NIMA was an agreement, not a compact, and was limited to the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance. [19] There was no commission – all rule-making continued to reside with the states - and no authority for anyone to establish rules and operating procedures that are binding on participating states. [19]
In addition, NIMA explicitly set forth premium tax allocation schedules and formulas. [19] Under NIMA, each participating state agreed to use a designated clearinghouse to facilitate the payment and distribution of nonadmitted insurance premium taxes. [19] The clearinghouse had ministerial functions with respect to the receipt and distribution of nonadmitted insurance premium taxes on behalf of the participating states in accordance with allocation formulas that had already been agreed upon by the states and are already set forth in NIMA. [19] NIMA did not provide for the establishment of committees, but rather, the clearinghouse (which will be selected by participating states by a competitive bid) was directed by the participating states as to its duties on their behalf. [19] NIMA prohibited the clearinghouse from accepting any gifts or donations. [19]
NIMA generally applied to property and casualty insurance, consistent with the NRRA, but allowed a state to utilize the clearinghouse for non-property and casualty insurance too. [19] NIMA also defined "principal place of business" and "principal residence" for the purpose of the definition of an insured's "home state", and provided that, if the insured's principal place of business or principal residence is located outside the United States, then the insured's home state is the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated. [19] NIMA further stated that when the group policyholder pays 100% of the premium from its own funds, the term "home state" means the home state of the group policyholder. [19] When the group policyholder does not pay 100% of the premium from its own funds, the term "home state" means the home state of the group member. [19]
A state could withdraw from NIMA by providing 60 days written notice. [19]
Alaska, Connecticut, Florida, Hawaii, Louisiana, Mississippi, Nevada, Puerto Rico, South Dakota, Utah, and Wyoming initially joined NIMA. [20] At that time, those states represented 21.6% of the surplus lines market (based on 2009 data). [20]
On April 28, 2016, NIMA's board voted to dissolve NIMA. [21]
A state may not impose eligibility requirements on, or otherwise establish eligibility criteria for, nonadmitted insurers domiciled in a United States jurisdiction, except in conformance with sections 5(A)(2) and 5(C)(2)(a) of the NAIC's Non-Admitted Insurance Model Act, unless the state has adopted nationwide uniform requirements, forms, and procedures that include alternative nationwide uniform eligibility requirements. [22] In addition, a state may not prohibit a surplus line broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a nonadmitted insurer domiciled outside the United States that is listed on the quarterly listing of alien insurers maintained by the NAIC's International Insurers Department ("IID"). [23]
A surplus lines broker seeking to procure or place nonadmitted insurance in a state for an exempt commercial purchaser ("ECP") is not required to satisfy any state requirement to a make a due diligence search to determine whether the full amount or type of insurance sought by the ECP may be obtained from admitted insurers if: (1) the broker procuring or placing the insurance has disclosed to the ECP that the insurance may or may not be available from the admitted market, which may provide greater protection with more regulatory oversight; and (2) the ECP has subsequently requested, in writing, that the broker procure or place the insurance with a nonadmitted insurer. [24]
An "exempt commercial purchaser" is defined as any person purchasing commercial insurance that, at the time of placement, meets the following requirements: (A) the person employs or retains a qualified risk manager to negotiate insurance coverage; (B) the person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months; and(C)(i) the person meets at least 1 of the following criteria: (I) The person possesses a net worth in excess of $20,000,000, as such amount is adjusted pursuant to clause (ii); (II) the person generates annual revenues in excess of $50,000,000, as such amount is adjusted pursuant to clause (ii); (III) the person employs more than 500 full-time or full-time equivalent employees per individual insured or is a member of an affiliated group employing more than 1,000 employees in the aggregate; (IV) the person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30,000,000, as such amount is adjusted pursuant to clause (ii); or (V) the person is a municipality with a population in excess of 50,000 persons. [25]
15 U.S.C. § 8206(13) defines "qualified risk manager." Clause (ii) in the definition of "exempt commercial purchaser" requires the amounts set forth in (C) to be adjusted annually to reflect the percentage change in the five-year period in the Consumer Price Index for All Urban Consumers published by the United States Department of Labor's Bureau of Labor Statistics. [25]
The NRRA provides that if the ceding insurer's state of domicile is an NAIC-accredited state, or has financial solvency requirements substantially similar thereto, and the state of domicile recognizes credit for reinsurance, then no other state may deny such credit for reinsurance. In addition, a state that is not the ceding insurer's domiciliary state is preempted to the extent that any of its laws or regulations: restrict or eliminate the rights of ceding and assuming insurers to resolve disputes pursuant to contractual arbitration; require that a certain state's laws govern a reinsurance contract, disputes arising from such contract, or requirements of the contract; attempt to enforce a reinsurance contract on terms different from those set forth in the reinsurance contract; or otherwise apply the laws of the state to reinsurance agreements of ceding insurers not domiciled in the state.
Where a reinsurer's state of domicile is NAIC-accredited or has substantially similar financial requirements, and the state of domicile determines that the reinsurer predominately engages in a reinsurance business and does not regularly sell direct insurance, the domiciliary state is the state solely responsible for regulating the reinsurer's financial solvency. A non-domiciliary state is precluded from requiring the reinsurer to provide any additional financial information other than the information the reinsurer is required to file with the domiciliary state.
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum. The benefits may include other expenses, such as funeral expenses.
Vehicle insurance is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from incidents in a vehicle. Vehicle insurance may additionally offer financial protection against theft of the vehicle, and against damage to the vehicle sustained from events other than traffic collisions, such as keying, weather or natural disasters, and damage sustained by colliding with stationary objects. The specific terms of vehicle insurance vary with legal regulations in each region.
Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insurance liabilities to the other insurance company. The company that purchases the reinsurance policy is referred to as the "ceding company" or "cedent". The company issuing the reinsurance policy is referred to as the "reinsurer". In the classic case, reinsurance allows insurance companies to remain solvent after major claims events, such as major disasters like hurricanes or wildfires. In addition to its basic role in risk management, reinsurance is sometimes used to reduce the ceding company's capital requirements, or for tax mitigation or other purposes.
Universal life insurance is a type of cash value life insurance, sold primarily in the United States. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level premiums throughout the insured's lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table. That not only allows for easy comparison of costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since cash is of no consequence.
General insurance or non-life insurance policy, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance is typically defined as any insurance that is not determined to be life insurance. It is called property and casualty insurance in the United States and Canada and non-life insurance in Continental Europe.
The Terrorism Risk Insurance Act (TRIA) is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal "backstop" for insurance claims related to acts of terrorism. The Act "provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism." The Act was originally set to expire December 31, 2005, was extended for two years in December 2005, and was extended again on December 26, 2007. The Terrorism Risk Insurance Program Reauthorization Act expired on December 31, 2014.
Liability insurance is a part of the general insurance system of risk financing to protect the purchaser from the risks of liabilities imposed by lawsuits and similar claims and protects the insured if the purchaser is sued for claims that come within the coverage of the insurance policy.
Whole life insurance, or whole of life assurance, sometimes called "straight life" or "ordinary life", is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date. As a life insurance policy it represents a contract between the insured and insurer that as long as the contract terms are met, the insurer will pay the death benefit of the policy to the policy's beneficiaries when the insured dies. Because whole life policies are guaranteed to remain in force as long as the required premiums are paid, the premiums are typically much higher than those of term life insurance where the premium is fixed only for a limited term. Whole life premiums are fixed, based on the age of issue, and usually do not increase with age. The insured party normally pays premiums until death, except for limited pay policies which may be paid up in 10 years, 20 years, or at age 65. Whole life insurance belongs to the cash value category of life insurance, which also includes universal life, variable life, and endowment policies.
An insurance broker is an intermediary who sells, solicits, or negotiates insurance on behalf of a client for compensation. An insurance broker is distinct from an insurance agent in that a broker typically acts on behalf of a client by negotiating with multiple insurers, while an agent represents one or more specific insurers under a contract.
A reciprocal inter-insurance exchange or simply a reciprocal in the United States is an unincorporated association in which subscribers exchange insurance policies to pool and spread risk. For consumers, reciprocal exchanges often offer similar policies to those offered by a stock company or a mutual insurance company. Notable reciprocal exchanges are managed by USAA, Farmers, and Erie.
A public adjuster is a professional claims handler/claims adjuster who represents the insured/policyholder in their insurance claim. Depending on the state, licensed public adjusters are required to prove competency in a variety of ways; written examination, experience time frames, and background checks. In many states, a public adjuster is a lawful fiduciary under either state or federal jurisdiction to legally and professionally represent the rights of an insured/policyholder during an insurance claim. The role of a public adjuster is to recover the best possible indemnification for their claims. Individuals may prefer to avoid the stress of claims handling themselves, and choose public adjuster representation to guide them through the process and minimize the time which must be spent to file their claim properly. Public adjusters negotiate with insurance companies/carriers for an adjustment or settlement. Primarily, public adjusters review the applicable insurance policy to determine coverage for the loss, assess the cause of loss to determine applicable coverage, assist the insured to prepare detailed scope and cost estimates to prove their loss. Public adjusters also provide insurance policy interpretation to determine if coverage exists, and to negotiate with the insurance company/carrier to a final and fair settlement. Most public adjusters charge a percentage of the settlement.
Insurance law is the practice of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling wise.
Bond insurance, also known as "financial guaranty insurance", is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security. It is a form of "credit enhancement" that generally results in the rating of the insured security being the higher of (i) the claims-paying rating of the insurer or (ii) the rating the bond would have without insurance.
Insurance in the United States refers to the market for risk in the United States, the world's largest insurance market by premium volume. According to Swiss Re, of the $6.861 trillion of global direct premiums written worldwide in 2021, $2.719 trillion (39.6%) were written in the United States.
Stranger-originated life insurance ("STOLI") generally means any act, practice, or arrangement, at or prior to policy issuance, to initiate or facilitate the issuance of a life insurance policy for the intended benefit of a person who, at the time of policy origination, does not have an insurable interest in the life of the insured under the laws of the applicable state. This includes the purchase of life insurance with resources or guarantees from or through a person that, at the time of policy initiation, could not lawfully initiate the policy; an arrangement or other agreement to transfer ownership of the policy or the policy benefits to another person; or a trust or similar arrangement that is used directly or indirectly for the purpose of purchasing one or more policies for the intended benefit of another person in a manner that violates the insurable interest laws of the state. The main characteristic of a STOLI transaction is that the insurance is purchased solely as an investment vehicle, rather than for the benefit of the policy owner's beneficiaries. STOLI arrangements are typically promoted to consumers between the age of 65 and 85.
Legal protection insurance (LPI), also known as legal expenses insurance (LEI) or simply legal insurance, is a particular class of insurance which facilitates access to law and justice by providing legal advice and covering the legal costs of a dispute, regardless of whether the case is brought by or against the policyholder. Depending on the national rules, legal protection insurers can also represent the policyholder out-of-court or even in-court.
A risk retention group (RRG) in business economics is an alternative risk transfer entity in the United States created under the federal Liability Risk Retention Act (LRRA). RRGs must form as liability insurance companies under the laws of at least one state—its charter state or domicile. The policyholders of the RRG are also its owners and membership must be limited to organizations or persons engaged in similar businesses or activities, thus being exposed to the same types of liability.
Captive insurance is an alternative to self-insurance in which a parent group or groups create a licensed insurance company to provide coverage for itself. The main purpose of doing so is to avoid using traditional commercial insurance companies, which have volatile pricing and may not meet the specific needs of the company. By creating their own insurance company, the parent company can reduce their costs, insure difficult risks, have direct access to reinsurance markets, and increase cash flow. When a company creates a captive they are indirectly able to evaluate the risks of subsidiaries, write policies, set premiums and ultimately either return unused funds in the form of profits, or invest them for future claim payouts. Captive insurance companies sometimes insure the risks of the group's customers. This is an alternative form of risk management that is becoming a more practical and popular means through which companies can protect themselves financially while having more control over how they are insured.
Insurance in South Africa describes a mechanism in that country for the reduction or minimisation of loss, owing to the constant exposure of people and assets to risks. The kinds of loss which arise if such risks eventuate may be either patrimonial or non-patrimonial.
