Industry Issues | Surplus Lines Reform

NAIC Surplus Lines Task Force Meeting Summary, August 4

NAIC Surplus Lines Task Force Meeting Summary

The Surplus Lines Task Force met on August 4, during the NAIC summer national meeting in Boston. The members adopted its spring national meeting minutes, March 24, followed by adoption of the Task Force's 2019 proposed charges. Those charges include the following key additions and changes: 1) providing a forum for discussion of emerging surplus lines-related issues; 2) tracking surplus lines industry results; and 3) monitoring federal legislation that may affect the surplus lines market.

The Task Force held further discussion of a second draft of the Guidelines on Nonadmitted A&H Coverages. Updates to the first draft were made based on six comment letters submitted. The drafting group was said to include: Ms. Stewart (WY); Mr. Kaumann and Renee Sanchez (CO); Max Ebert (MD); and Robert Wake (ME). Key revisions include: 1) the Drafting Group expanded on the overall purpose of the Guidelines, with attention given to current laws and regulations within the state; 2) a new Section 4 was added to address consumer protections, which highlights the key differences between these protections in the admitted versus nonadmitted markets; and 3) a new Section 6 addresses lines open for export and resulting considerations when maintaining an export list.

The Drafting Group could not resolve one item addresses surplus lines licensing. The Drafting Group, however, recommended that the Guideline's revisions in the second draft be released for a second exposure period while this licensing issue is addressed. The Task Force agreed with the Drafting Group's recommendation to expose the Guidelines for a 30-day public comment period ending Sept. 4. Following this second exposure, the Task Force is expected to hold either an interim conference call or address any additional comments during the Fall National Meeting.

As it relates to the licensing issue, the Drafting Group suggested a referral that addresses language currently within the State Licensing Handbook that indicates: "States shall require an underlying property and casualty license prior to the issuance of a resident surplus lines license."

The draft Nonadmitted A&H Guidelines, Section 2 - Background outlines certain types of A&H coverages where a producer may be required to hold a life or A & H license. The Drafting Group raised the point that a producer holding one of these licenses may not possess a property/casualty license (P/C) and, therefore, not qualify for a surplus lines license. As such, the Task Force approved a referral to the Producer Licensing (D) Task Force requesting its review and determination as to whether the requirement of an underlying P/C license needed to qualify for a surplus lines license should also allow a life or A & H license to fulfill that requirement. If it is determined that the underlying licensure requirement to qualify for a surplus lines license should be expanded to include life or A & H, it is recommended that the State Licensing Handbook, Standard 39 - Surplus Lines Standards be changed to reflect the inclusion.

Additional commentary from a drafting group member stated that the point of the referral was to allow a life or A & H licensee the ability to obtain a surplus lines license in order to write the expanded disability and travel insurance coverages, without additionally requiring a P/C license. An industry response clarified that life and A & H retail licensees should need to place the excess disability and travel insurance coverages through a surplus lines licensed broker.

The Task Force additionally received a NAIC report that included a summary of the number of domestic and alien insurers writing U.S. surplus lines premiums, the 2017 aggregated premium amounts by insurer classification, and the amount of gross surplus lines reserves by Lloyd's Syndicates and alien insurance companies and the value of assets in the group's U.S. surplus lines trust accounts that partially collateralize their obligations to U.S. policyholders. The also summarized the results of 2017 cybersecurity reporting, which included the number of insurers writing coverage and whether the cyber was written on a stand-alone or package policy basis, the amount of premiums written by classification, the pure direct loss ratio, the number of policies, and the number of claims reported and the total amount of claims payments made.