Changes to the Ohio Surplus Lines Regulations

The date July 21st, 2011 looms large in the surplus lines industry.  That is the day the Non-admitted & Reinsurance Reform Act (NRRA) takes affect and there will be many changes industry wide.  A number of states have changed their surplus lines code to be complaint with the NRRA and many went beyond what was required to meet the compliance requirement.  I plan to spend many hours over the next 2 weeks reading the new regulations and getting ready to change our procedures to be in compliance with these changes.  The effective date of the changes to the Ohio Surplus Lines Law is June 17, 2011.

One of the first states I am reviewing is Ohio.  In my opinion Ohio still has some changes that are needed to bring it up to speed with what is going on in the industry.  As of the date of writing this blog post, the Ohio Department of Insurance has not released a bulletin detailing the changes and how they will be implemented.

One of the major changes will deal with the handling of multi state accounts.  If the account is just a single state risk, then there will not be any change on who to pay the tax to.  On multi-state accounts you will need to determine the “home state” of the account.  Not every state has the same definition of “home state” so you may need to check each of the states the insured has locations in.  In Ohio “home state” means the state in which an insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence except in the case of either of the following:

(a) If one hundred per cent of the insured risk is located out of the state in which an insured maintains its principal place of business or principal residence as described in division (A)(1)(a) of this section, “home state” means the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.

(b) If more than one insured from an affiliated group are named insured’s on a single unauthorized insurance contract, “home state” means the state in which the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract.

“Principal place of business” means the state where the insured maintains the insured’s headquarters and where the insured’s high-level officers direct, control, and coordinate the business activities of the insured.

Once you determine that Ohio is the “home state”, you will do the filing in Ohio and provide them with an allocation of the premium by state.  It will be up to Ohio to distribute the tax to the other states which will depend on if they have a tax sharing agreement with Ohio such as SLIMPACT, Slimpact-Lite or NIMA.  No longer will you have to do separate filings in each state.  The Ohio Department of Insurance will have that responsibility.

Exciting stuff, ay?  No, but hopefully it will lead to more efficient transactions for your multi-state accounts.  I say this, since there are a number of different tax sharing agreements between states and it will be the problem of the departments of insurance to sort it all out.  It was the hope that this would be a “revenue neutral” change but that remains to be seen.

So what else do I need to know about the changes in Ohio?

1. Some insureds (larger ones who employ a risk manager) may be exempt from the due diligence requirement.  For these clients you will no longer be required to get 3 declinations from your admitted carriers since they determine these risks to be an “exempt commercial purchaser”.  The code defines what it takes to meet this status.  Being exempt from the due diligence requirement DOES NOT MEAN they are exempt from surplus lines tax!!!!  I have an e-mail from the Ohio Department of Insurance confirming this so let me know if you run into competitive situations where the competing agent is giving the client the wrong information.

2. The Ohio Department of Insurance has detailed out who IS exempt from surplus lines tax.  While there are no significant changes here they have clarified who is exempt.  Municipalities have been exempt according to a long standing Attorney General’s opinion but now have a “clean” section of code that details their exemption.  We are not sure at this time if the ODI will bring back the surplus lines tax exemption form to confirm if an insured meets the requirements for exemption.

3. Filling and paying your surplus lines tax may change from the current March 31 of the following year.  It will be dependent on the compact the ODI signs with other states.

4. You will not be able to renew your surplus lines license if you have unpaid tax outstanding.  The new code also gives the superintendent the authority to waive the penalty of 25% which has been automatically imposed if taxes were late.

For a copy of the revised code in Ohio please refer to the following link :   

http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_122

Feel free to e-mail me with your questions since I will be communicating with the Ohio Department of Insurance for clarification on a few issues.

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