Surplus lines insurers (often referred to as nonadmitted insurers) play an important role in providing coverage for risks otherwise unable to obtain needed protection in the admitted market. Depending on the characteristics of and/or claims history of a prospective insured, an underwriter may decline some risks, even if they ordinarily specialize in a particular market.
Because surplus lines insurers are largely unregulated, before a producer can place a risk in the surplus lines market, they generally must document that coverage was declined by insurers in the admitted market. But that’s changing for those states that have adopted legislation to comply with the United States Nonadmitted and Reinsurance Reform Act of 2010. One example is HB 1123 in North Dakota. The ND bill applies to the placement of surplus lines coverage, the regulation of surplus lines coverage and producers, and the taxation of surplus lines premiums if the insured’s home state is North Dakota.
The new provisions of this and/or similar statutes: define home state; change qualifications of eligible surplus lines insurers; define exempt commercial purchasers and exempt them from due diligence search requirements; change recordkeeping and reporting requirements of surplus lines producers; require a new consumer notice be attached to the surplus lines coverage application; and address the taxation of multi-state policies.
Another change pertaining to surplus lines is the Surplus Lines Insurance Multistate Compact. Adoption of the Compact (which is part of ND HB 1123 noted above) allows the allocation of premium tax paid to the insured’s home state among the compacting states. The Multistate Compact also allows a foreign insurance company to be designated as a surplus line insurer under certain circumstances. Surplus Lines Multistate Compact legislation has been enacted in other states in addition to North Dakota, including Indiana, Kansas, Kentucky, New Mexico, Rhode Island and Vermont. Additional states have pending proposals.
Times they are a-changing.
Editor’s recommendation: Keep apprised of industry changes with NILS INsource.
