BILL REQ. #:  Z-0435.2 

Read first time 01/24/11.   Referred to Committee on Financial Institutions, Housing & Insurance.

     AN ACT Relating to unauthorized insurance; amending RCW 48.15.040, 48.15.040, 48.15.090, 48.15.110, and 48.15.120; adding new sections to chapter 48.15 RCW; creating a new section; providing effective dates; providing an expiration date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   A new section is added to chapter 48.15 RCW to read as follows:
     The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Affiliate" means, with respect to an insured, any entity that controls, is controlled by, or is under common control with the insured.
     (2) "Affiliated group" means any group of entities that are all affiliated.
     (3) With respect to an insured, an entity has "control" over another entity when:
     (a) The entity directly or indirectly or acting through one or more other persons owns, controls, or has the power to vote twenty-five percent or more of any class of voting securities of the other entity; or
     (b) The entity controls in any manner the election of a majority of the directors or trustees of the other entity.
     (4)(a) "Exempt commercial purchaser" means any person purchasing commercial insurance that, at the time of placement, meets the following requirements:
     (i) The person employs or retains a qualified risk manager to negotiate insurance coverage;
     (ii) The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of one hundred thousand dollars in the immediately preceding twelve months; and
     (iii) The person meets at least one of the following criteria:
     (A) The person possesses a net worth in excess of twenty million dollars, as the amount is adjusted under (b) of this subsection;
     (B) The person generates annual revenues in excess of fifty million dollars, as the amount is adjusted under (b) of this subsection;
     (C) The person employs more than five hundred full-time or full-time equivalent employees per insured or is a member of an affiliated group employing more than one thousand employees in the aggregate;
     (D) The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars, as the amount is adjusted under (b) of this subsection; or
     (E) The person is a municipality with a population in excess of fifty thousand persons.
     (b) The amounts in (a)(iii)(A), (B), and (D) of this subsection must be adjusted to reflect the percentage change for the five-year period in the consumer price index for all urban consumers published by the bureau of labor statistics of the United States department of labor.
     (c) For the purpose of this subsection, "commercial insurance" means property and casualty insurance pertaining to a business, profession, occupation, nonprofit organization, or public entity.
     (5)(a) Except as provided in (b) of this subsection, "insured's home state" means, with respect to an insured:
     (i) The state in which an insured maintains its principal place of business or, in the case of an individual, the individual's principal residence; or
     (ii) If one hundred percent of the insured risk is located out of the state referred to in this subsection, the state to which the greatest percentage of the insured's taxable premium for that insurance contract is allocated.
     (b) If more than one insured from an affiliated group are named insureds on a single insurance contract issued by an unauthorized insurer, the term "insured's home state" means the insured's home state, as determined pursuant to (a) of this subsection, of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract.
     (c) To determine the home state of the insured, the principal place of business is the state where the insured maintains its headquarters and where the insured's high-level officers direct, control, and coordinate the business activities of the insured.
     (6) "Qualified risk manager" means, with respect to a policyholder of commercial insurance, a person who meets all of the following requirements:
     (a) The person is an employee of, or third party consultant retained by, the commercial policyholder;
     (b) The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance; and
     (c) The person:
     (i)(A) Has a bachelor's degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the commissioner to demonstrate minimum competence in risk management; and
     (B)(I) Has three years of experience in risk financing, claims administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance; or
     (II) Has one of the following designations:
     (AA) A designation as a chartered property and casualty underwriter (CPCU) issued by the American institute for CPCU/insurance institute of America;
     (BB) A designation as an associate in risk management issued by the American institute for CPCU/insurance institute of America;
     (CC) A designation as certified risk manager issued by the national alliance for insurance education and research;
     (DD) A designation as a RIMS fellow issued by the global risk management institute; or
     (EE) Any other designation, certification, or license determined by the commissioner to demonstrate minimum competency in risk management;
     (ii)(A) Has at least seven years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and
     (B) Has any one of the designations specified in (c)(i)(B)(II)(AA) through (EE) of this subsection;
     (iii) Has at least ten years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; or
     (iv) Has a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the commissioner to demonstrate minimum competence in risk management.

Sec. 2   RCW 48.15.040 and 2010 c 230 s 17 are each amended to read as follows:
     If certain insurance coverages cannot be procured from authorized insurers, such coverages, hereinafter designated as "surplus lines," may be procured from unauthorized insurers subject to the following conditions:
     (1) The insurance must be procured through a licensed surplus line broker under this chapter. If the insurance is property and casualty insurance, except industrial insurance under Title 51 RCW, then the insurance must be procured under the laws and rules of the insured's home state.
     (2) The insurance must not be procurable, after diligent effort has been made to do so from among a majority of the insurers authorized to transact that kind of insurance in this state.
     (3) Coverage shall not be procured from an unauthorized insurer for the purpose of securing a lower premium rate than would be accepted by any authorized insurer nor to secure any other competitive advantage.
     (4) The commissioner may by regulation establish the degree of effort required to comply with subsections (2) and (3) of this section.
     (5) At the time of ((the)) procuring ((of any such)) the insurance ((an affidavit setting forth)) the surplus line broker must certify to the accuracy of the facts ((referred to)) supporting the surplus line broker's diligent effort required in subsections (2) and (3) of this section ((must be executed by the surplus line broker. Such affidavit shall)).
     (a) The certification must set forth the facts supporting the surplus line broker's diligent effort.
     (b) The certification must state that under the penalty of suspension or revocation of the surplus line broker's license the facts contained in the certification are true and correct.
     (c) The certification may be in electronic, digital, or another format as designated by the commissioner.
     (d) The certification must be filed with the commissioner within ((thirty)) sixty days after the insurance is procured.
     (6) For purposes of chapter 48.164 RCW, a joint underwriting association established or authorized by the legislature is not an authorized insurer.

Sec. 3   RCW 48.15.040 and 1983 1st ex.s. c 32 s 4 are each amended to read as follows:
     If certain insurance coverages cannot be procured from authorized insurers, such coverages, hereinafter designated as "surplus lines," may be procured from unauthorized insurers subject to the following conditions:
     (1) The insurance must be procured through a licensed surplus line broker under this chapter. If the insurance is property and casualty insurance, except industrial insurance under Title 51 RCW, then the insurance must be procured under the laws and rules of the insured's home state.
     (2) The insurance must not be procurable, after diligent effort has been made to do so from among a majority of the insurers authorized to transact that kind of insurance in this state.
     (3) Coverage shall not be procured from an unauthorized insurer for the purpose of securing a lower premium rate than would be accepted by any authorized insurer nor to secure any other competitive advantage.
     (4) The commissioner may by regulation establish the degree of effort required to comply with subsections (2) and (3) of this section.
     (5) At the time of ((the)) procuring ((of any such)) the insurance ((an affidavit setting forth)) the surplus line broker must certify to the accuracy of the facts ((referred to)) supporting the surplus line broker's diligent effort required in subsections (2) and (3) of this section ((must be executed by the surplus line broker. Such affidavit shall)).
     (a) The certification must set forth the facts supporting the surplus line broker's diligent effort.
     (b) The certification must state that under the penalty of suspension or revocation of the surplus line broker's license the facts contained in the certification are true and correct.
     (c) The certification may be in electronic, digital, or another format as designated by the commissioner.
     (d) The certification must be filed with the commissioner within ((thirty)) sixty days after the insurance is procured.

NEW SECTION.  Sec. 4   A new section is added to chapter 48.15 RCW to read as follows:
     When a national insurance producer database of the national association of insurance commissioners, or other equivalent uniform national database, for the licensure of surplus line brokers is created, the commissioner may participate in the database.

NEW SECTION.  Sec. 5   A new section is added to chapter 48.15 RCW to read as follows:
     A surplus line 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 set forth in RCW 48.15.040 when:
     (1) The surplus line broker or referring insurance producer procuring or placing the surplus line insurance has disclosed to the exempt commercial purchaser that such insurance may or may not be available from the admitted market that may provide greater protection with more regulatory oversight; and
     (2) The exempt commercial purchaser has subsequently requested in writing the surplus line broker or referring insurance producer to procure or place such insurance from an unauthorized insurer.
     (3) Records of the surplus line broker's satisfaction of the requirements of this section must be maintained in compliance with RCW 48.15.100.

Sec. 6   RCW 48.15.090 and 1997 c 89 s 1 are each amended to read as follows:
     (1) A surplus line broker ((shall)) must not knowingly place surplus line insurance with insurers unsound financially. The surplus line broker ((shall)) must ascertain the financial condition of the unauthorized insurer, and maintain written evidence thereof, before placing insurance therewith. The surplus line broker ((shall not)) may only so insure with:
     (a)(i) Any foreign insurer ((having less than six million dollars of capital and surplus or substantially equivalent capital funds, of which not less than one million five hundred thousand dollars is capital)):
     (A) That is authorized to write the kind of insurance in its domiciliary jurisdiction; and
     (B) Has capital and surplus or its equivalent under the laws of its domiciliary jurisdiction which equals the greater of:
     (I) The minimum capital and surplus requirements under the laws of this state; or
     (II) Fifteen million dollars.
     (ii) The requirements of (a)(i)(B) of this subsection may be satisfied by an insurer's possessing less than the minimum capital and surplus upon an affirmative finding of acceptability by the commissioner. The finding must be based upon factors such as quality of management, capital and surplus of any parent company, company underwriting profit and investment income trends, market availability, and company record and reputation within the industry. The commissioner is prohibited from making an affirmative finding of acceptability when the foreign insurer's capital and surplus is less than four million five hundred thousand dollars; or
     (b) Any alien insurer ((having less than six million dollars of capital and surplus or substantially equivalent capital funds. By January 1, 1992, this requirement shall be increased to twelve million five hundred thousand dollars. By January 1, 1993, this requirement shall be further increased to fifteen million dollars.
     Such alien insurers must have in force in the United States an irrevocable trust fund, in a qualified United States financial institution, on behalf of United States policyholders of not less than five million four hundred thousand dollars and consisting of cash, securities, letters of credit, or of investments of substantially the same character and quality as those which are eligible investments for the capital and statutory reserves of admitted insurers authorized to write like kinds of insurance in this state.
     There must be on file with the commissioner a copy of the trust, certified by the trustee, evidencing a subsisting trust fund deposit having an expiration date which at no time shall be less than five years after the date of creation of the trust. Such trust fund shall be included in the calculation of the insurer's capital and surplus or its equivalents; or
     (c) Any group including incorporated and individual insurers maintaining a trust fund of less than fifty million dollars as security to the full amount thereof for all policyholders in the United States of each member of the group, and such trust shall likewise comply with the terms and conditions established in (b) of this subsection for an alien insurer; or
     (d) Any insurance exchange created by the laws of an individual state, maintaining capital and surplus, or substantially equivalent capital funds of less than fifty million dollars in the aggregate. For insurance exchanges which maintain funds for the protection of all insurance exchange policyholders, each individual syndicate shall maintain minimum capital and surplus, or the substantial equivalent thereof, of not less than six million dollars. In the event the insurance exchange does not maintain funds for the protection of all insurance exchange policyholders, each individual syndicate shall meet the minimum capital and surplus requirements of (a) of this subsection)) that is listed on the quarterly listing of alien insurers maintained by the international insurers department of the national association of insurance commissioners.
     (2) The commissioner may, by rule((:
     (a) Increase the financial requirements under subsection (1) of this section by not more than one million dollars in any twelve-month period, but in no case may the requirements exceed fifteen million dollars; or
     (b))), prescribe the terms under which the foregoing financial requirements may be waived in circumstances where insurance cannot be otherwise procured on risks located in this state.
     (3) For any violation of this section the surplus line broker may be fined not less than one hundred dollars or more than five thousand dollars, and in addition to or in lieu thereof the surplus line broker's license may be revoked, suspended, or nonrenewed.

Sec. 7   RCW 48.15.110 and 2009 c 549 s 7058 are each amended to read as follows:
     (1) Each surplus line broker ((shall)) must on or before the first day of March of each year file with the commissioner a verified statement of all surplus line insurance transacted by him or her during the preceding calendar year.
     (2) The statement ((shall)) must be ((on forms)) in a form and format as prescribed ((and furnished)) by the commissioner and ((shall)) must show:
     (a) Aggregate of net premiums; and
     (b) Additional information as required by the commissioner.
     (3) This section does not apply to property and casualty insurance procured by the surplus line broker when the insured's home state is a state other than this state.

Sec. 8   RCW 48.15.120 and 2009 c 549 s 7059 are each amended to read as follows:
     (1) On or before the first day of March of each year each surplus line broker ((shall)) must remit to the state treasurer through the commissioner a tax on the premiums, exclusive of sums collected to cover federal and state taxes and examination fees, on surplus line insurance subject to tax transacted by him or her during the preceding calendar year as shown by his or her annual statement filed with the commissioner, and at the same rate as is applicable to the premiums of authorized foreign insurers under this code. ((Such)) The tax when collected ((shall)) must be credited to the general fund.
     (2) ((If a surplus line policy covers risks or exposures only partially in)) For property and casualty insurance other than industrial insurance under Title 51 RCW, if this state is the insured's home state, the tax so payable ((shall)) must be computed upon the ((proportion of the)) entire premium ((which is properly allocable to the)) under subsection (1) of this section, without regard to whether the policy covers risks or exposures that are located in this state.
     (3) For all other lines of insurance, if a surplus line policy covers risks or exposures only partially in this state, the tax so payable must be computed upon the proportion of the premium that is properly allocable to the risks or exposures located in this state.

NEW SECTION.  Sec. 9   Section 8 of this act applies to all surplus line insurance policies with an effective date on or after July 21, 2011.

NEW SECTION.  Sec. 10   Section 2 of this act expires December 31, 2016.

NEW SECTION.  Sec. 11   Section 3 of this act takes effect December 31, 2016.

NEW SECTION.  Sec. 12   Sections 1, 2, and 4 through 9 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing institutions, and take effect July 21, 2011.