1993 Looks to be Active Year for Surplus Line Legislation
As a quick review, the following is a summary of each new law or regulation:
AB 2608--Changes in the Conditions for Exportation
This bill makes it "prima facie" evidence that a diligent search was performed if declinations from three admitted carriers actually writing the particular type of insurance in this state, or a statement that fewer than three admitted insurers actually write the coverage, is filed on a standardized form prescribed by the Commissioner. The form is to be signed by the California licensee (either the retail producer or surplus line broker) who actually conducted the search or who supervised the person doing the search.
In addition to the above declination report a separate confidential report of placement is also required. This report requests six fields of specific information in regard to the insured and the risk being placed. This law was effective 1/I/93.
SB 1145--Changes In the Disclosure Requirements
This bill modifies the disclosure statement mandated by existing section 1764.1 and requires, with an exception for "industrial insureds," that the new disclosure statement be in boldface 16 point type on both; (1) a freestanding document which is signed by the applicant and (2) the front of every policy issued by a non-admitted insurer.
If the applicant qualifies as an "industrial insured," the insured's signature is not required on the freestanding disclosure statement. This law was effective 1/1/93.
Emergency Regulation 23C
In short this regulation requires the filing of certain financial documents by the non-admitteds. Additionally, it requires that certain criteria be met in terms of capital and surplus as well as trust accounts. It also outlines a schedule of annual payments and filing fees that are to be paid to the DOI by the carriers. his regulation, however, only applies to new non-admitted insurers that have not been used for California placements.
Some of the Specific provisions include the following:
- $15 million in capital and surplus.
- $5.4 million trust account for alien insurers.
- 3 years of seasoning.
- Must be licensed to issue policies to the residents of the state/country that granted their license.
- Before placing business with a "new" insurer, the broker must submit specified documents (e.g., financial statements, insurer's license, trust agreement, etc.) and a $1,500 filing fee.
- Any other broker who wants to make placements with an insurer that has gone through the above process, must submit a specified form and a $35 filing fee.
Permanent Regulation 23D
Shortly after the Emergency Regulation 2174 was approved by the OAL, the DOI started the process for the permanent regulation. This is essentially the same as the emergency regulation, except for one notable difference: the permanent regulation applies to all non-admitted carriers.
The Office of Administrative Law (OAL) approved the permanent regulation on November 25, 1992 and it became effective on the same day. New nonadmitted insurers must comply immediately with these requirements, while non-admitted insurers which had written insurance on California risks prior to November 24, 1992 will have 180 days to comply.
Specifics for each piece of legislation and regulations are detailed in the following bulletins issued by the SLA: #522 (regarding Emergency Regulation 2174, issued July 15, 1992), #526 (regarding Permanent Regulation 2174, issued September 18, 1992), #531 (regarding AB 2608 and SB 1145, issued on October 19,1992). 1 urge you to become familiar with the particulars outlined in these bulletins.
What all this regulatory activity indicates is that insurance in California has irrevocably changed. Once, California used to be rated as the best state to do business, by insurance executives. Now that same poll ranks California at the very bottom. As a result many companies have left the state, not wishing to deal with new and increasing legislative mandates, including the attendant and rising costs of doing business here. However for many of us, exodus in not the solution.
The veterans in this industry have seen the damage caused by piecemeal legislation through the years. That experience has led many of us to conclude that only one long term solution exists: a cooperative proactive partnership with government. Such cooperation will assist the industry and regulators from passing legislation which adversely affects everyone concerned. Unfortunately, indications are that additionally onerous bills are already in production to be introduced this year. Examples include a bill promoting "white lists" and the resurrection of AB 2445 in its original form-requiring the submission of any private passenger automobile application to the California Automobile Assigned Risk Plan (CAARP), prior to submission to the non-admitted market.
To prevent such legislation from taking hold, a one-time comprehensive and cohesive solution is needed. The SLA is proposing that the legislature seriously consider an amended version of the NAIC's Surplus Line Model Law. The SLA amended it to meet the specific needs of California. This approach, which is the product of years of research by the best minds in the regulatory and surplus line fields, will ensure that the current law (which war, written in 1937) is updated in a thoughtful and practical manner.