Before creating joint underwriting associations to provide difficult-to-obtain insurance, such as for medical malpractice or nursing homes, state regulators should encourage coverage by surplus lines’ insurers. The Surplus Lines Committee of the National Association of Independent Insurers (NAII) reiterated that position at a recent meeting.
“As they have so often in the past, surplus lines insurers can provide a safety valve for businesses and consumers that are encountering difficulties in obtaining insurance,” Michael Koziol, senior director and counsel at NAII, commented. “But state regulators should not impede this natural competitive process by creating JUAs before it’s clear that the surplus lines market isn’t working in these troubled areas.
“Because rate and form restrictions affecting the standard market do not apply to surplus lines insurers, they can provide customers with tailored policies to meet their specific needs when they have difficulty obtaining coverage elsewhere.”
Generally, customers who have tried unsuccessfully to obtain insurance from at least three licensed companies in their state (referred to as “due diligence”) can then seek coverage from an out-of-state surplus lines insurer who is not subject to that state’s rate and form restrictions.
“This system has worked well over the years, providing more than $9 billion a year in needed coverage since 1994,” Koziol said. “To meet that need, surplus lines insurers must be free to write a variety of coverages without being tied to specific mandates or restrictions.
“The result is far better for everyone than the artificial mechanism of forming a JUA that forces licensed insurers to bear the risks involved, ultimately at a higher cost for all consumers. In addition, under no circumstances should a JUA be ahead of surplus lines in the hierarchy of markets”
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