Surplus Lines Regulatory Picture for 2013

By | January 10, 2013

  • January 10, 2013 at 1:42 pm
    Dave Smith says:
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    The broker submits the information, and then each state closes the loop by asking the SL insurer for premium allocable to that state.

    Problem: Home State – If broker does not give insurer breakdown by state to the insurer like it used to. State goes after insurer, but insurer has not been given info by broker.

    What say you to that, Mr. Brown?

    • January 13, 2013 at 1:08 pm
      Rick Brown says:
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      Dave:

      This is not a new problem. Historically, state regulators and premium taxation authorities have tried to reconcile broker data with insurer Schedule T’s and have in some cases sought data directly from the surplus lines insurer.

      Under the NRRA it is equally if not important that the broker and the insurer report the same premium allocation data. To that end, the surplus lines broker should endeavor to ensure that the insurer and the broker are reporting the same data to the same states. There is no other solution of which I am aware.

  • January 14, 2013 at 11:30 am
    Dave Smith says:
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    Thank you.

    And if the brokers choose generally to no longer give the traditional breakdown, because the particulars for any given case (and this will be true for most home state calculations) do not require such breakdown–too much “unnecessary work”?

    How should carriers handle this market breakdown? Threaten not to do business with the brokers? (Rembmer, we are talking about major brokers).

    It is astonishing to me that this issue has not received greater prominence, given that there are really quite a number of SL carriers out there.

    Or am I missing seeing that gigantic carpet in the sky with much dust having been swwept under it?

    • January 14, 2013 at 2:23 pm
      Rick Brown says:
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      Dave:

      For single state risks, which comprise about 99% of surplus lines policies, there should be no premium allocation issue. For multistate policies, and absent state premium allocation rules to the contrary, the broker should report premium allocations on the same basis as the insurer.

      My understanding, including for my own clients which include some of the largest wholesale brokers in the country, is that the major brokers, including Marsh, Aon, and Willis, are pretty sophisticated about premium allocation reporting.

      Bottom line: brokers and surplus lines insurers would be well served to make sure they both report multistate premium allocation data in the same way. To the extent they do not, state regulators and premium taxation authorities have good reason to question the reason(s) for any differences.

      That said, unless there is a pattern and practice of misreporting or the amounts are significant,I would not expect much serious flyspecking of the differences.



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