FINAL BILL REPORT

HB 1694

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

C 31 L 11

Synopsis as Enacted

Brief Description: Regulating unauthorized insurance.

Sponsors: Representatives Stanford and Kirby; by request of Insurance Commissioner.

House Committee on Business & Financial Services

House Committee on Ways & Means

Senate Committee on Financial Institutions, Housing & Insurance

Background:

Surplus Lines Insurance.

Generally, an insurance company may not engage in the business of insurance in the state unless the insurance company is authorized to do so by the Office of the Insurance Commissioner (OIC).  "Surplus lines" insurance coverage is an exception. Surplus lines insurance is coverage that cannot be procured from authorized insurance companies.  Often, surplus lines policies cover risks that do not fit normal underwriting patterns or fit standard insurance policies.  Unlike insurance offered by an authorized insurer, surplus lines insurance is not subject to rate and policy form oversight. If coverage cannot be purchased from an authorized insurer, the coverage may be purchased from an unauthorized insurer through a licensed surplus lines broker if:

The surplus lines broker must execute an affidavit setting forth the facts regarding the diligent effort and the purpose for using an unauthorized insurer when insurance is purchased from an unauthorized insurer. The affidavit must be filed with the OIC within 30 days after the purchase of the insurance.

Licensing requirements regarding surplus lines brokers include:

Capital Requirements for Unauthorized Insurers.

A surplus lines broker must not knowingly place surplus lines insurance with an insurer that is not financially sound. The surplus lines broker must determine and document the financial condition of the unauthorized insurer before placing insurance with the insurer. The surplus lines broker may not place insurance with:

Surplus Lines Premium Tax.

A surplus lines broker must pay a premium tax of 2 percent on surplus lines insurance transacted by the broker. The tax is credited to the State General Fund. If a surplus lines policy covers risks or exposures that are only partially located in this state, the tax is computed upon the proportion of the risks or exposures located in this state.

In 2010 the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (House Resolution 4173) included provisions that addressed surplus lines regulation. The federal law:

Summary:

Insured's Home State.

"Insured's home state" is defined:

If more than one insured from an affiliated group are named insureds on a single insurance contract issued by an unauthorized insurer, the insured's home state is the home state of the member of the affiliated group that pays the largest percentage of premium.

Surplus Lines Premium Tax.

For property and casualty insurance, if this state is the insured's home state, the tax is computed upon the entire premium without regard to whether the policy covers risks or exposures that are located in this state. For all other lines of insurance, the tax is computed upon the proportion of the premium that is properly allocable to the risks or exposures located in this state.

Exemption for Certain Commercial Purchasers.

A person is an "exempt commercial purchaser" if the person:

A surplus lines broker seeking to procure from or place insurance with an unauthorized insurer for an exempt commercial purchaser is not required to satisfy the diligent effort requirement if the:

Affidavits.

The "affidavit" is replaced by a "certification." The certification may be in electronic, digital, or other format or form as designated by the OIC. There is specific language requiring the surplus lines broker to certify that the information is true and correct under the penalty of license suspension or revocation. The filing period is extended from 30 days to 60 days.

Capital Requirements for Unauthorized Insurers.

A surplus lines broker may only place insurance with:

Specific requirements regarding groups and exchanges are struck.

Other.

The OIC is authorized to participate in a uniform national database for the licensure of surplus lines brokers if such a database is created.

Votes on Final Passage:

House

98

0

Senate

48

0

Effective:

July 21, 2011

December 31, 2016 (Section 3)