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Thus, it is clear that the E&S market must now increase its vigilance in the manner and
extent to which the federal government will begin regulating or overseeing insurance. The
growth of the E&S market can be seen in the percentage of the total property and casualty
industry by premium:
1987 1997 2007
COMMERCIAL LINES $123,314,542,000 $146,668,576,000 $267,718,286,000
E&S $6,566,000,000 $9,419,000,000 $37,336,288,000
E&S AS A % OF 5.32% 6.42% 13.95%
COMMERCIAL LINES
Another example is the amount of taxes being collected on surplus lines premium, which
have also been on the increase:
2005 2006 2007
pREMIUM $35,896,752,150 $37,786,954,168 $38,176,840,141
TAxES $1,157,378,697 $1,281,847,169 $1,300,706,732
by way of history, the McCarran-Ferguson Act, 15 U.S.C. § 1011, was passed by US Congress
in 1945 after the Supreme Court ruled in US v. South-Eastern Underwriters that insurance could
be regulated by the federal government via the Commerce Clause (the overturned case stated
that the federal government had this power). In other words, insurance was viewed as interstate
commerce. In effect, the act allowed the federal government to empower the states to regulate
insurance licensing and other aspects of insurance business.
however, in recent years, that designation has been called into question based on a variety
of developments, including the speed with which state regulators implemented modernisation
and provided additional consumer protections. Following the sea-change election in 2008 in
the White house, state and federal legislatures, the views of how insurance should be regulated
have changed as well.
The Optional Federal Charter bill has been one of the devices introduced by federal
legislators, and reintroduced annually. The national Insurance Consumer Protection Act (hr
1880) was introduced in 2009 to create a strong federal regulator for insurance. An Office of
national Insurance (OnI) would be created within the department of the Treasury, with a
commissioner appointed by the President, subject to approval by the US Senate. The OnI
would then be authorised to issue charters for national life and property and casualty insurers,
reinsurers, and licences for national insurance agencies and producers. A division of Consumer
Affairs with a presence in every state would also be created.
Prior to the advent of these actions, the E&S community worked with Congress, beginning
in 2006, and introduced the non-admitted and reinsurance reform Act (nrrA). The bill
was designed to, among other things, make the home state of the insured the jurisdiction
in which surplus lines premium taxes would be paid on a multi-state commercial risk. It
would also allow for immediate export to the surplus lines market, so long as various criteria


were in place.
The nrrA passed unanimously in the US house of representatives each year, and
a companion bill was finally introduced in the US Senate in 2008. It was reintroduced as
hr 2571 in the house and as S 1363 in the Senate in 2009. Whilst action is pending for ©iStockphoto.com / sumbul
50 | INTELLIGENT INSURER | September 2009
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