Illinois House Committee Approves Surplus Line Auto Insurance Bill

By | May 3, 2004

A bill that would give agents the flexibility to place certain auto insurance business with surplus line carriers instead of the state’s auto insurance plan passed the Illinois House Insurance Committee 14-0 last week. The bill has already passed the Senate.

A similar bill was vetoed last year by Democratic Gov. Rod Blagojevich last year, but according to Surplus Lines Association of Illinois Executive Director David Ocasek the governor’s concerns have been addressed.

The governor was concerned that consumers would have less redress against insolvent surplus lines insurers, but he was assuaged by A.M. Best data showing that domestic surplus line carriers’ insolvency rates are superior to domestically licensed insurers, according to Ocasek.

“Generally, the reason people want to not be compelled into the residual market is they want broader coverage and higher limits,” Ocasek told Insurance Journal. “There’s more to pursue there.”

The bill would allow agents to directly seek a surplus lines quote for commercial auto risk after three standard-market declinations. Currently, agents are forced to place the business with the Illinois Automobile Insurance Plan.

For personal auto risks, if the limits and coverage being sought are available in the residual market, the business must be placed there. If not, an agent can place the business with a surplus line carrier. Again, this can only be done after three declinations from standard-market insurers.

The “overwhelming majority” of business affected by the bill would be commercial auto, according to Ocasek.

“It’s good public policy to steer things toward the licensed market first,” he added. “After that, it’s important to keep the residual market volume low. It’s not taxed, so that’s less revenue for the state. This is a market of last resort in most cases. Surplus lines is voluntary. Consumers should get that choice before they’re forced into the market of last resort.”

Chances of the bill’s passage appear good.

DOI consolidation, med-mal negotiations

Meanwhile, Blagojevich’s proposal to consolidate the Illinois Department of Insurance (DOI) within the Department of Professional Regulation has received some opposition in the Illinois Senate.

Democratic Sen. Miguel del Valle proposed a resolution to reject the governor’s proposal, but it’s unclear whether he’ll call for a vote during the Senate Executive Committee before the end of the session deadline, according to a briefing from the Professional Independent Insurance Agents of Illinois (PIIAI).

The PIIAI briefing also reported that negotiations on what to do about the state’s medical liability insurance crisis continue without clear resolution. The Democratic-controlled General Assembly has appeared to lean in the direction of rate regulation as the answer.

The Illinois Trial Lawyers Association has called for using Web-based direct marketing instead of agents and brokers to distribute medical liability insurance, using the projected savings to reduce rates. The PIIAI briefing said it’s unlikely the concept will gain any traction.

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