A new agreement on surplus lines insurance means Mississippi should get about $16 million in tax revenue of which about $10 million will go into the state’s wind pool, according to Insurance Commissioner Mike Chaney.
Chaney, speaking Thursday in Pascagoula, said he and insurance commissioners from Florida and Hawaii have signed a Non-Admitted Insurance Multistate Agreement.
The Mississippi Press reports Chaney said the state does not license surplus lines companies, but does tax them. The companies write insurance that is not available from licensed insurers, according to the state insurance department. The coverage is typically specialized property or liability coverage
Chaney said the agreement was the result of federal legislation that provides that only an insured’s home state may require a premium tax payment for surplus lines insurance. Chaney said the law means without the agreement only the states in which the companies are located within could collect a tax.
The companies are primarily located in New York, California, Florida, Louisiana and Texas, he said.
“Hopefully this will pave the way for more states to sign on and conserve badly needed general fund revenue,” Chaney said.
The federal legislation allowed states to establish uniform procedures for the collection of premium taxes and fees due from surplus lines policies for multi-state risks if such an agreement was established by June 15, Chaney said.
Gov. Haley Barbour signed legislation in March to allow the state to proceed and sign to create an agreement.
Mississippi began collecting taxes on surplus lines companies in 1997, but 2010 was the first year some of the tax was dedicated to the state’s wind pool, Chaney said.
The Mississippi Windstorm Underwriting Association, often called the wind pool, is the insurer of last resort for homeowners and commercial property in high-risk areas.
The wind pool received about $9.5 million from the surplus lines tax in 2010, he said.
“That helps keep us from having to go try to find $20 million every year to put in to keep rates level,” he said.
The policies are taxed 5 percent for the wind pool and 4 percent for the state’s general fund, he said.
About 11 or 12 percent of the Gulf Coast’s insurance market is written by surplus lines companies, he said.
“It makes the market more competitive,” Chaney said.
Chaney said licensed insurance companies pay into a guaranty fund to make sure policies are paid.
Historically, surplus lines companies are riskier because if they go broke then policies may not be paid in full, Chaney said. In recent years surplus lines have been required to have enough capital and reinsurance to cover their policies, he said.
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