Legislative Report
In the States
Steve Stephan, JD, ASLI
Director of Government Relations
A number of bills regarding surplus lines were reviewed by the state legislatures during the past month.
Alabama
SB 558 would allow a surplus lines insurer to become approved without completing the 5-year seasoning requirement for insurers making a special deposit with the state.
California
AB 784 would have addressed the issue of what duties can be performed by a California domestic company in California on behalf of an affiliated surplus lines insurer. California presently prohibits a surplus lines insurer from operating within its borders. The bill will apparently not advance in this session as the interested parties are seeking a solution outside of the legislative process.
Florida
The Florida legislature has passed HB 853/SB 1894 to rectify the holding in Essex v. Zota. The working group fought off a number of amendments offered by the trial bar and ultimately got the bill passed. The trial bar did succeed in getting some of their amendments attached, but it could have been much worse without the tireless efforts of the working group. The bill provides that Chapter 627
of the Florida insurance code does not apply to surplus lines insurance, except for those provisions that specifically reference surplus lines insurance. The bill must still be signed by the Governor to become law, but the working group is optimistic this should occur shortly.
Louisiana
HB 333 would allow only one deductible per calendar year for named windstorms, as well as windstorm and hail. It was to apply to homeowners insurance. The language of the bill did not specifically state that it applied to surplus lines insurance or exempted surplus lines insurance. NAPSLO submitted a joint letter with the AAMGA and the Louisiana Surplus Lines Association asking that surplus lines insurers be exempted from the scope of the bill in order to retain the
traditional freedom from form regulation. The letter argued that the bill would actually make insurance less available for the most distressed homeowners and force more business into the state-run facility. Through the efforts of the LSLA and others, the bill has now exempted surplus lines insurance from the one deductible rule.
Louisiana Regulation 93 has become final. The regulation requires insurers who wish to deviate from rules regarding canceling or changing policy terms for homeowner's policies that have been in force for more than three years to file a business plan with the Department outlining how they plan on writing additional policies in the state. The regulation states that it applies to surplus lines insurers.
Other bills being considered by Louisiana include: SB 40 which would repeal the surplus lines tax; SB 290 which would exempt surplus lines insurance from statutory provisions regarding co-insurance clauses; and HB 293 which would allow state agencies to purchase excess insurance exempt from the surplus lines tax.
NAIC
On March 27, NAPSLO submitted written comments to the NAIC NARAB working group concerning the requirement that surplus lines brokers obtain a P&C agent license as a prerequisite for a surplus lines broker’s license. Graham Leach Bliley required the states to enact reciprocal licensing requirements. If the states failed to do so, the National Association of Registered Agents and Brokers would come into existence. The underlying licenses would appear to contravene the reciprocity requirements outlined in GLBA.
New York
Resident surplus lines brokers in Missouri, Montana and Florida applying for an excess line broker license in New York will not receive full license authority to write business in New York state because those states do not issue an unlimited license for New York resident licenses, according to a recent bulletin from ELANY.
Under Bulletin 2009-10 released on May 11, ELANY reviewed the state’s position regarding reciprocity and the issuance of “full” or “limited” non-resident excess/surplus lines broker licenses. The bulletin said that brokers from Florida and Montana will receive a limited license, which permits them only to write purchasing group business in New
York.
New York will issue an unlimited license for Missouri licenses for individuals, however corporate entities will receive the limited license. In addition, while not limiting what they can write, the state will require a bond for California and Washington resident brokers because those states require a bond for New York resident brokers.
Rhode Island
Bulletin 2008-8 provided that surplus line affidavits are no longer required to be filed with the state insurance department. The broker maintains the original in his or her office. The state is still being asked by brokers to confirm no filing is required. In addition, the notary signature is no longer required. The state has asked NAPSLO to help publicize these procedures.
Insurance Bulletin 2009 – 4 establishes an emergency adjuster access and coordination plan to be implemented when a catastrophe is declared. The bulletin requires insurance companies, including surplus lines companies, to provide the department with emergency contact information
Texas
SB 2136 is a bill to create a surplus lines export list. It took an unusual turn when the background material described the bill as allowing agents to access either the admitted or non-admitted markets. NAPSLO has written a letter explaining how the surplus lines broker’s license is necessary to access the surplus lines markets in other states. We do not believe the background material intended to allow broader access to surplus lines insurers, but was more likely a poor
choice of words.
Industry Legislative Meetings
On April 15 I attended a meeting in Washington D.C. with the NAIC, other trade associations, NAPSLO lobbyist Libby Baney of B&D Consulting, and staffers from the offices of numerous congressional representatives regarding the introduction of the Non-Admitted and Reinsurance Reform Act in the U.S. House of Representatives in 2009.
The discussion generally involved the question of whether the surplus lines portion of the bill would be introduced exactly as it appeared last year, or whether some technical language changes would be made. The NAIC had been pushing for some minor changes. The staffers seemed interested in determining whether there were language changes with which all parties could agree.
The staffers in the offices of Rep. Dennis Moore (D-KS) and Rep. Scott Garrett (R-NJ), worked with leadership and staff on the House Financial Services Committee to arrange the impressive meeting of major NRRA stakeholders. We are hopeful the bill will be introduced in the near future with minor language changes. The reinsurance section of the NRRA was not on the agenda and was beyond the scope of the meeting.
On April 16 and 17 I attended the annual meeting of the Louisiana Surplus Lines Association in Marksville, Louisiana, where new officers were installed. Also discussed during the meeting was the Essex v. Zota problem in Florida.
On April 29 I gave a presentation at the NAIC’s E-Reg conference in Kansas City on the problems with the multi-state taxation of surplus lines insurance.
On April 30 I attended the IIABA Legislative conference. While there, along with the IIABA representatives, I visited the office of numerous congressional representatives to discuss, among other things, the NRRA.
