Getting items on California’s surplus lines export list is no easy task.
Just ask Ben McKay, executive director of the Surplus Line Association of California.
McKay can recall only a few coverages that have been added in the last 10 years, but he’s hopeful things will be different at the 2019 Export List hearing in Sacramento, Calif., next month.
“This year is unique because there’re four coverages that might potentially be added, and three that might be deleted or modified,” McKay said.
The SLA-Cal, a self-governed private organization that serves as a go-between for the surplus lines market and state regulators, takes an active role in getting items on the export list.
Among the potential items for consideration at the hearing being held by the California Department of Insurance are requests to add the following products, or variations thereof, to the list:
- Parametric earthquake
- Pollution package policies (General liability, contractors pollution liability, and professional liability)
- Scaffold operation/business/contractor/rental & sales first party and liability
- Terrorism/sabotage committed for political, religious, or ideological purposes
The notice also indicates there may be requests to delete or modify the following products currently listed on the export list:
- Bridge plan
- High limits disability
- Deletion of “With Limits > $10M” from commercial DIC/stand-alone earthquake
The export list is a list of coverages, maintained by the CDI, which are eligible for placement in the surplus line market without the necessity of a broker obtaining three declinations from the admitted market. Coverages are placed on the export list after the CDI holds a public hearing and determines that the coverages are not readily available in the admitted market.
Adding a risk or coverage to the export list requires evidence there isn’t an adequate or reasonable market for that risk or coverage in the admitted market, or that the type of coverage is for new, innovative products for which a reasonable or adequate market among admitted insurers has not had time to develop.
More than two dozen states have some form of export list, but the process of getting an item onto the list in California is a long and difficult one.
“California has the most due process built around our list,” McKay said.
In most states, the insurance commissioner can just decide that a coverage can be put on or taken off the list.
California’s export list requires an administrative process, including gathering input from surplus lines insurers or brokers with request for items to be added to the list, proper notice of an item being potentially put on or off the list and an official public hearing – a follow up hearing can also be requested.
That may be part of the reason why only a few items have been added to the list in the last decade.
“It doesn’t happen frequently,” McKay said.
Oftentimes businesses show up at the hearing to make a case for the addition of an item, but don’t have enough affidavits from retailers showing there’s a need for it to be added.
The CDI will also err in favor of admitted market when there’s a question of whether to add an item, McKay said.
A new law that could improve the process may have an impact on at least one of the proposed items this year.
Assembly Bill 1641, signed in 2017 by Gov. Jerry Brown, was designed to give the CDI more flexibility in deciding which coverages to add to the list. AB 1641 authorizes the insurance commissioner to allow non-admitted insurers to sell “innovative” insurance products in California.
McKay, who along with the SLA-Cal supported the bill, believes the parametric earthquake item falls in the innovative product category. The product does not indemnify the pure loss but makes a payment upon the occurrence of a triggering event.
Jumpstart Insurance Solutions Inc. in 2018 launched such a product. McKay said that among those interested in putting the item on the export list include a carrier, a reinsurer and a broker. He declined to name names.
Last year commercial drone coverage was added to the export list, the first product to be added under the new statutory language of AB 1641.
Asked to recall another product that was recently added, McKay had to think back to an errors & omissions coverage for hospitals that was added in 2012.
Despite the difficulty adding items to the list, surplus lines in California have been quite busy in 2019.
“We can tell you that processed premium is up 22 percent this year,” McKay said. “We already have processed more premium this year than we did all of last year.”
The hearing is scheduled for 10 a.m. on Nov. 19 at the CDI’s San Francisco hearing room on the 22nd Floor, 45 Fremont St., in San Francisco.
The CDI notice also directs that all written testimony, comments or documents must be sent to the CDI in triplicate (original and two copies) and received by Libio Latimer, Attorney III, California Department of Insurance, 45 Fremont St., 24th Floor, San Francisco, CA 94105 by no later than 5 p.m. on Nov. 19.
In addition to written submissions, questions regarding the CDI notice and opportunities to testify can also be directed to Latimer at (415) 538-4420. Cliston Brown with the Surplus Line Association of California is also fielding questions. He is at (415) 434-4900, ext. 1139.
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