SURPLUS LINES LEGISLATIVE UPDATE 2016
The Arizona Department of Insurance issued Regulatory Bulletin 2016-04 to clarify that House Bill 2149 (which took effect on August 6, 2016 and allows domestic lines insurers in Arizona) does not alter or eliminate the ability of surplus lines brokers to charge and receive fees from an insured. Instead, the bulletin clarifies that a surplus lines broker is not responsible for paying taxes and stamping fees for fees an insurance producer charges directly to an insured.
House Bill 2279 requires the Arizona Department of Insurance to include an assessment of fees in their complaint ratios for motor vehicle insurance policies and amends the circumstances under which certain fees may be charged. For the purposes of this act, insurance maintained by a transportation network company (TNC) driver under a private passenger auto policy would be subject to the new requirements; however, all other surplus lines and commercial insurance is exempt from the bill. This bill was signed by the Governor and went into effect August 9, 2017.
Assembly Bill 1641 amends the allowable criteria for the inclusion of risks on the export list. Risks that have not had time to develop an adequate admitted market would be eligible for inclusion on the list, pending an affirmative declaration by the insurance commission. This bill was enacted on September 15, 2017.
House Bill 7013 establishes standards to allow domestic surplus lines insurance companies in Connecticut. With the enactment of this bill, Connecticut becomes the 13th state to allow DSLIs, joining Arizona, Arkansas, Delaware, Illinois, Louisiana, Missouri, New Hampshire, New Jersey, North Dakota, Texas, Wisconsin and Oklahoma. This bill was enacted and became law on July 1, 2017.
House Bill 7183 amends policy renewal requirements for all insurers including surplus lines insurers. The bill requires insurers to issue a conditional renewal notice to insureds if the insurer intends to renew a policy under terms or conditions less favorable to the insured than provided under the existing policy. Surplus lines insurers were not previously exempt from any cancellation or nonrenewal provisions under Connecticut law. This bill was enacted and took effect October 1, 2017.
House Bill 147 increases filing fees for the initial registration and annual continuation for surplus lines insurers to $150, increases initial filing fee for brokers to $250 and increases resident and nonresident broker renewals to $200. The bill took effect July 3, 2017.
House Bill 813 extends the diligent effort exemption for flood insurance (currently set to expire in July 2017) through July 1, 2019, as long as the insurer maintains a “superior” or “excellent” strength rating by A.M. Best. This bill was approved by the Governor and took effect July 1, 2017.
House Bill 221 provides for regulation of transportation network companies while allowing surplus lines insurers to cover the required insurance, but only if they have a superior, excellent, exceptional, or equivalent financial strength rating from a department approved rating agency. This bill was enacted and took effect July 1, 2017.
House Bill 805 prohibits the transfer of a policy to an insurer in the same group if the policy is for personal lines residential or commercial residential property coverage and is being converted to a surplus lines policy. This bill was enacted and took effect May 10, 2017.
On December 14, 2016, the FSLSO issued Bulletin 2016-04 announcing that all new and renewal policies or certificates with an effective date on or after April 1, 2017 will be subject to a reduced Florida service fee. The fee decreased from 0.15% to 0.1%.
Senate Bill 19 eliminates the requirement that surplus lines brokers file a zero premium report in periods where they transacted no business. The legislation also reorganizes the statute regarding insurer eligibility but does not add any new requirements to meet the standards. However, it does specifically state that annual renewal for eligibility is due by June 30, as has been required since the implementation of the NRRA per the Commissioner but was not part of the statute. The bill was enacted and took effect October 1, 2017.
House Bill 800/Senate Bill 94 clarifies that surplus lines brokers are allowed to charge and collect expenses incurred for payment of premium, policy fee, other fees and taxes related to the policy by use of credit card, provided that a broker who accepts alternative forms of payment disclose those alternative forms to the insured. This bill was enacted and took effect October 1, 2017.
In February, 2017, the Minnesota Surplus Lines Association announced that stamping fees will be assessed on taxable premium (including broker fees) and not as they are currently assessed on the policy premium only. The change will be implemented for policies effective on January 1, 2018.
House Bill 447 eliminates the requirement that a diligent search of the admitted market be made before placing insurance with a surplus lines producer thus becoming the fourth state to eliminate the diligent search requirement, joining Louisiana, Virginia and Wisconsin. The bill also decreases from two to one the number of fire and casualty companies that a producer must be regularly commissioned to represent in order to obtain a surplus lines license and expands the necessary items that must be included in the acknowledgment provided to the insured including that coverage may or may not be available in the admitted market that may “provide greater protection with more regulatory oversight” and that losses shall not be paid by the Guaranty Association in the event of an insolvency. This bill was enacted on March 7, 2017 and became effective July 1, 2017.
In December 2016, the Nebraska Department of Insurance issued a bulletin to clarify the changes in Legislative Bill 837, effective January 1, 2017, which eliminated tax allocation of risk based upon other states’ rates. The bulletin states that the tax rate to be used is the rate effective on the date premium was charged which is either the date of coverage or the policy anniversary date. The bulletin notes that filing dates have changed to March 1, June 1, September 1 and December 1 for their respective quarters. The bulletin also established a de minimis refund of less than $25 will be carried forward as a credit to the next quarter filing.
Assembly Bill 3695 provides for the regulation of transportation network companies and specifically allows surplus lines to provide the required insurance. This bill was signed by the Governor on February 10, 2017.
Assembly Bill 69 provides for regulation of motor carriers, taxi companies and transportation network companies that utilize autonomous vehicles and allows the required insurance to be provided by surplus lines carriers. This bill was enacted and took effect June 16, 2017.
Senate Bill 367 is a bill sponsored by the New Mexico Insurance Superintendent that eliminates the need for brokers to file surplus lines affidavits with the state. Rather, brokers would need to maintain a signed statement of diligent effort. The bill also eliminates SLIMPACT authorization. This bill was enacted and became effective July 1, 2017.
The Department of Financial Services (DFS) issued final Cybersecurity Requirements for Financial Services companies that took effect on March 1, 2017 and will impact surplus lines brokers. The regulation requires each covered entity (including New York surplus lines licensees) to implement an extensive cybersecurity program and designate a Chief Information Security Officer responsible for implementing and reporting the program to the New York DFS. While the regulation takes effect on March 14, 2017, the requirements associated with reporting to the DFS are not due until February 15, 2018.
Senate Bill 438 exempts cities and towns in Oklahoma from paying tax on any policy of surplus lines insurance. This bill took effect on November 1, 2017.
House Bill 1559 exempts from diligent effort requirements any industrial insureds that employ qualified risk managers, have aggregate nationwide commercial insurance premiums of $25,000 in the last year and have 25 full-time employees. This bill took effect on September 1, 2017.
House Bill 2492 establishes standards to allow domestic surplus lines companies in Texas. This bill was signed by the Governor on June 15, 2017 and became effective January 1, 2018.
Senate Bill 1364 amends insurance requirements for motor carriers, including transportation of property for hire, and specifically allows surplus lines to cover required insurance. The bill was signed by the Governor and took effect on January 1, 2018.
House Bill 1027 requires any applicants for a resident surplus lines broker’s license to have and maintain a resident producer license with a property and casualty line of authority. The legislation will ensure that Washington resident licenses are given reciprocity for nonresident licenses in other states. This bill became effective January 1, 2018.
Senate Bill 77 establishes standards to allow domestic surplus lines companies in Wisconsin. This bill was signed by the Governor and took effect on June 22, 2017.
House Bill 80 provides for regulation of transportation network companies and specifically allows surplus lines insurers to provide the required insurance. This bill took effect on March 3, 2017.
National Association of Registered Agents and Brokers (NARAB)
NARAB in effect is a new federal agency that will become operational as a clearinghouse once its board of directors is in place. It will allow insurance producers licensed in their home states to sell, solicit, or negotiate in every other state in which they intend to do business, provided the producers are licensed for those lines of business in their home states and pay their home states’ licensing fees. The 13 members of the board are nominated by the President and subject to confirmation by the Senate and are to be made up of eight state insurance regulators and five industry members, three of which will represent the property and casualty segment. Before leaving office, President Obama nominated ten individuals to serve as inaugural members of NARAB’s board but the 114th Congressional Session ended without the Senate Banking Committee taking the necessary action to confirm these nominations. Any of the nominees announced last year that are willing to serve must be reappointed by the new Administration for reconsideration and approval, but no actions have been taken at this time to do so. There have been no announcements regarding a timeline since the new Congressional Session convened and the new Administration took office.
Senate Introduces Flood Insurance Bill
On July 18, 2017 the leaders of the Senate Banking Committee released a bipartisan bill to keep the federal flood insurance program funded for six years and create new risk mitigation procedures for communities to follow.
Congress has until October 1, 2017 to reauthorize the National Flood Insurance Program (NFIP), first established in the 1960s to provide flood insurance to at-risk homes. Lawmakers are seizing on the deadline as a chance to cut the NFIP’s $24 billion debt and shift more flood insurance customers to a burgeoning private market.
Private flood insurance was largely non-existent when the NFIP was established in 1968, and Republicans are eager to reduce taxpayer exposure to risky homes by easing federal policyholders into private plans.
A House reform plan is currently stalled in the House Financial Services Committee amid bipartisan opposition from more than 20 lawmakers.
The Foreign Account Tax Compliance Act (FATCA)
H.R. 871 is pending and, if passed, would eliminate the P&C industry’s requirement to report non-cash-value premiums under FATCA. Since FATCA was passed, the P&C industry has asked for relief from FATCA reporting due to its unnecessary and burdensome application to the insurance industry. Ultimately, FATCA is directed at foreign financial institutions and financial intermediaries and aims to prevent tax evasion by U.S. citizens, U.S. residents and corporations through the use of offshore accounts.
Reporting Requirements Under TRIPRA
The Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) requires that the Secretary of the Treasury submit a report to Congress as to the effectiveness of the program. In response to this requirement, the Federal Insurance Office (FIO) issued a voluntary call in March 2016, asking participating insurers to submit the following information starting with calendar year 2016:
- Lines of insurance with exposure to terrorism-related losses
- Premiums earned on such coverage
- Locations of exposures
- Pricing of coverage
- Take-up rate of coverage
- Amount of private reinsurance purchased for acts of terrorism
- Any other matters the Treasury secretary considers appropriate.
The data were provided through one of four templates depending on whether participating insurers (1) fall under the Treasury’s “small insurer” definition; (2) are larger insurers that do not fall under the small insurer definition; (3) are alien surplus lines insurers; or (4) are captive insurers as defined in the code of federal regulations.
In July 2016, the National Association of Insurance Commissioners (NAIC) also issued a call for terrorism-related data through the New York Department of Financial Services as the lead state, joined by all remaining states and the District of Columbia. The data call was voluntary, but in 2017 responses became mandatory for the approximately 900 insurers participating in the program. Insurers were required to submit certain data by May 15, 2017, with the remaining information due by October 1, 2017.