Ocasek Describes Stamping Office Operations at AAMGA University

Illinois’ surplus line association chief offered a history and overview of the group’s activities in a presentation to the 9th annual meeting of the American Association of Managing General Agents in Orlando, Fla.

Ocasek’s presentation was one of four given to AAMGA University students in Orlando sessions. Other stamping bureaus activities were described by Phil Ballinger, executive director of the Surplus Lines Stamping Office of Texas; Larry C. Boyd, executive director of the Surplus Line Association of Oregon; and Daniel F. Maher Jr., executive director of the Excess Line Association of New York.

The National Association of Professional Surplus Lines Offices and AAMGA supported the creation and operation of state stamping offices because they’re designed offer a form of efficient self-regulation which benefits consumers through an innovative and resourceful excess and surplus line marketplace.

The associations maintain that the following points characterize the ideal characteristics of stamping offices: governance, compliance and self-regulation, solvency, advocacy, education, service and information, electronic filing procedures and taxation of multi-state risks.

In 1994, NAPSLO and AAMGA published a position paper in support of the contributions and services provided by the surplus lines community by state stamping offices.

They said the E&S community serves insureds who cannot obtain property and casualty insurance due to the insureds’ unique insurance needs or risk characteristics and the specialty licensed excess and surplus line brokers who fulfill these insurance needs by placing such risks with eligible nonadmitted insurers.

Education is a key function of stamping offices with three states, California, Florida and New York, leading the way with top-notch Web sites. Altogether there are stamping offices in Arizona, California, Colorado, Florida, Idaho, Illinois, Mississippi, Montana, Nevada, New York, Oregon, Pennsylvania, Texas, Utah and Washington.

Typical educational functions include seminars and training, typically for continuing education credits, Web sites and publications. Training materials, bulletins and newsletters also play a key educational role. Other typical functions include market assistance and help with fraud detection.

In his overview of the history of stamping offices, Ocasek pointed out that “the excess and surplus stamping/service office is a creature of surplus line insurance which is a creature of state regulation.”

Ocasek said that before state regulation, many businessmen could not obtain sufficient insurance in companies licensed in the state where the property to be insured is located. They were often compelled to place the surplus line with nonadmitted companies or associations. He cautioned that in such cases, great care was necessary.

“Surplus line concerns as a class were inferior in financial responsibility and general to the companies regularly licensed,” Ocasek said. “Many of them were wholly unworthy of confidence.”

He pointed out that these considerations appllied with special force to nonadmitted foreign companies, a number of which are transacting business in the United States.

“Many brokers making a specialty of placing surplus lines are incompetent, dishonest or both,” Ocasek said. “They collect premiums which they fail to pay to the companies and the premium must be paid again or the policy will be canceled.

“Frequently, disputes arise also because of misrepresentation about physical conditions by unscrupulous brokers in order to place insurance. Many of the surplus line companies insert objectionable and unusual clauses in their policies.”

Onscreen Ocasek flashed a typical, tongue-in-cheek, clause that said: “Despite what it may say elsewhere in the policy, we don’t actually pay for any losses that may occur.”

Ocasek continued with other descriptions of historical dangers encountered with surplus line insurance and finished up saying that he hoped the industry had come a long way since an A.M. Best report in 1916 concluded:

“And finally, by insisting that the policies accepted contain a clause binding the companies to accept and pay in accordance with the adjustment of the regularly admitted companies or a majority of them.”

He pointed out that today things are very different than even in the 1960s, referring to a 2004 A.M. Best report on ratings and solvency trends, that said:

“The median [rating] for the domestic professional surplus lines composite was ‘A’ (excellent) in 2003, while the standard market registered a median rating of ‘A-‘ (excellent).”

Ocasek said that stamping offices first began in the 1930s in California and Oregon. Insurance departments were concerned that they had no control or knowledge of alien insurers operating in their states.

He said the idea of stamping offices provided a self-funded, self-regulated organization that would:

• Encourage compliance with the

surplus lines laws, rules and regulations;

• Protect the revenues of the state; and

• Contribute to a stable, efficient and financially sound surplus line

marketplace.

He showed statistics tracing the amount of surplus lines premiums in the United States from $500 million in 1963; $900 million in 1968; $1 billion in 1976; $2 billion in 1978; $2 billion in 1983; $4 billion in 1985; and $7 billion in 1987.

Ballinger followed with detailed examples of benefits of the operation of stamping offices, emphasizing that they played a key role between industry and state regulators. He said it was important to foster an environment of heightened concern for compliance. It is important, he said, to make sure agents and consumers have an enhanced knowledge of law due to educational programs and to avoid the hazards of unauthorized insurance.

“The key role of a stamping office is to promote a reputable, efficient and financially strong surplus lines market,” said Ballinger, who has worked at the stamping office in Austin since 1992.

“Typical functions are to receive regulatory filings, including diligent search, affidavits and other filing forms, policies and policy data.”

He said this role includes analysis, compliance, record keeping and statistical reporting of agencies, insurers and coverages.

“Stamping offices must maintain their credibility and walk on both sides of the street, maintaining impartiality when in between state regulatory agencies and the insurance industry,” Ballinger said. He said publications sponsored by the stamping office reinforce knowledge and clarify compliance issues.

Ballinger said there are numerous benefits from the operation of stamping offices: Improving the quality of policies issues, including benefits insurers, agents and policyholders; promoting ethical and professional behavior;

Increasing the likelihood that only strong, well-capitalized insurers operate in the surplus lines market and discourage the entry of illicit insurers; expand the state’s network for identification of unlawful schemes and unauthorized insurance;

Assist agents in accounting for premium taxes and states in assuring appropriate taxes are collected; creating a more level playing field in which all agents and insurers operate under the same rules;

Providing technical assistance to nonresidential agents, taxes, and complex procurement questions and as a sole source for market statistics.

“We received thousands of policies on paper last year,” Ballinger said. “In the old days, such policies were brought into the office by ox cart. In 2003, 30 percent of the policies came in electronically, and we hope the number will increase as technology becomes more available.”

Ballinger displayed a slide showing stacks of policies at his office and said that increasingly, regulatory filings made electronically will eliminate inefficient and costly paper submissions.

He said that by networking stamping offices, the insurance industry and regulator contacts will foster a broader perspective on insurance issues and practices. He pointed out that stamping office programs operate at no expense to the state as stamping fees are not a state revenue.

To comment on this story, e-mail: dkaiser@insurancejournal.com.

Topics California Carriers New York Legislation Agencies Excess Surplus Education Training Development Universities Oregon