About Us - General History

In 1937, California Legislature revised the surplus line law enabling the Insurance Commissioner to oversee the regulation of surplus line transactions. To assist the Commissioner with this regulatory oversight, the surplus line brokers were requested to form an association whose main objective then would be to keep its Members abreast on regulations and guidelines relating to surplus line insurance. Honoring this request, the brokers formed the Surplus Line Association of California ("SLA"), a private, non-profit organization.

Shortly after its formation, the Commissioner requested the SLA to expand its role in 1939 by undertaking the responsibilities of a "stamping office" to receive and examine surplus line broker filings, as well as to ensure that proper surplus line taxes are collected. At the same time, the SLA played a supportive role in assisting and encouraging its Members to comply with surplus line laws and regulations in California.

Historically, the SLA performed essentially two functions in assisting the Commissioner oversee the surplus line activities in this State. First, acting as the "stamping office" for filings made by the surplus line brokers, the SLA ensures broker filings are in order and are made in compliance with existing laws and regulations. Second, the SLA collects and reviews financial information concerning the non-admitted carriers used by its Members. In 1987, the SLA began a security review program limited to non-discretionary review of only foreign non-admitted insurers’ security filings. Although the security review program was designed to assist the surplus line broker in evaluating the suitability of the carrier, it is always the broker who bears the ultimate responsibility for evaluating, judging, and selecting that security which will safeguard the interests of California risks.

In the late 80’s and early 90’s, the surplus line market grew dramatically in California, both in premium volume and in the number of non-admitted carriers. This was largely due to more and more average household insurance buyers flocking into the non-admitted market for coverage, because they were either unable to get insurance in the admitted market or because they believe it was too expensive. This flood of average personal lines (mainly private passenger auto liability) insurance buyers lack understanding of the intricacies of non-admitted insurance and the sophistication when selecting a non-admitted insurer. Consequently, many times their quest for lower premium led them to a few unscrupulous brokers and poorly capitalized offshore alien insurers who took advantage of their naivete. As a result, consumer complaints against the surplus line industry (due mainly to the insurer not paying claims) skyrocketed and legislative scrutiny followed.

By 1993, several significant pieces of legislation and regulation were enacted that specifically affected the surplus line market in California. The effects of these statutes restricted the number of non-admitted insurers allowed to do business in California; limited the types of insurance that may be exported to the non-admitted market; and allowed the surplus line community the opportunity to take a more active role in assisting the DOI regulate the non-admitted market.

Two of the statutes adopted in 1993 have a direct impact on the operations of the SLA. Regulation 2174, which took effect May 1993, established tighter financial and operational standards for non-admitted insurers operating in California. Concurrent with the adoption of Regulation 2174, the DOI requested the SLA to expand its security program and perform specific analysis to determine whether foreign and (beginning in 1994) alien non-admitted insurers meet the criteria established by the DOI.

In October of 1993 California legislators passed Assembly Bill 865 (CIC 1780.50). This Bill, which became effective January 1, 1994, codifies the responsibilities of a surplus line advisory organization and allows the Insurance Commissioner to delegate certain duties under a Plan of Operation. In addition to granting statutory recognition to the advisory organization, members and employees of the advisory organization were granted immunity while performing the delegated duties.

On March 30, 1994, the SLA officially became the surplus line advisory organization, following the Commissioner’s determination that the SLA had the qualifications identified in CIC 1780.54 (a). The DOI also approved the SLA’s Plan of Operation which outlined the specific duties to be performed by the SLA, as well as the procedures to be taken to ensure that the duties are performed.

While the SLA is often perceived as a regulatory agency, it has NO separate regulatory powers. The SLA’s activities are at the direction and control of the DOI. Under its new statutory authority, the SLA is also subject to an examination of its performance of the functions under the Plan of Operation at least once every three years by the DOI.

The SLA’s main goal is to continue working together with its Members and the DOI to help maintain a healthy, fair, and competitive marketplace in California, as well as protect the interests of the California consumers, the eligible non-admitted insurers, and the brokers.

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