Ill. Lawmakers Considering Surplus Lines Bills

March 10, 2004

Bills dealing with the surplus lines market are up for consideration in the Illinois legislature this session.

“We’re keeping a close eye on two surplus lines bills, one of which resembles a bill vetoed last year by Governor Rod Blagojevich,” said Laura Kotelman, regional manager and senior counsel for the Des Plaines, Ill.-based Property Casualty Insurers Association of America (PCI).

“The surplus lines market is an essential way for critically important businesses like day care centers and nursing homes to obtain insurance that’s unavailable in the traditional marketplace. Therefore, any changes to the surplus lines laws should be carefully considered.”

SB 2560 closely resembles last year’s vetoed bill, which would have amended the state insurance code to allow a producer to place business in the surplus lines market without having to get a declination from a residual plan, such as the Illinois Auto Plan and the Illinois FAIR plan.

The governor objected to the bill based on concerns about allowing increased access to the surplus lines market because of the insurers’ unregulated status and the potential impact on third-party claimants.

SB 2560, which deals specifically with the Illinois Auto Plan, establishes a number of guidelines for producers to follow when purchasing surplus lines coverage, including prohibiting them from procuring a policy from an unauthorized insurer and proving financial responsibility and insurance requirements in compliance with Illinois law. The bill also includes clarification that a surplus lines producer may procure insurance from an unregulated insurer if the excess or umbrella coverage is written over underlying policies.

“PCI is working with Illinois insurance producers and the governor’s office to fine-tune the bill’s language,” Kotelman said. “We support the bill in its current version, as it would appropriately place surplus lines, a free-market mechanism, ahead of the residual market mechanism.” SB 2560 was passed by the Senate and is in the House Committee on Rules.

Insurers also are watching SB 2301, which has been amended to address how any future increases in the surplus lines tax will be administered. Last spring Gov. Rod Blagojevich, a Democrat, increased this tax from 3 to 3.5 percent.

However, because of the wording of the Illinois Insurance Code, the Department of Insurance interpreted the increase to be retroactive to Jan. 1, 2003 instead of July 1, 2003. Although SB 2301 will not affect the increase, which is currently in litigation, it would ensure that any future increases would be applied on a prospective basis. PCI supports the bill.

“We don’t object to the tax increase, but to its timing,” said Michael G. Koziol, assistant vice president and counsel for the PCI. “The surplus lines industry faces an administrative nightmare of applying this tax law to endorsements, refunds and cancellations. This bill would simplify that process.”

PCI’s members wrote $137 million in surplus lines premiums in Illinois and $4.8 billion in the country last year.

Topics Legislation Excess Surplus Illinois

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