By Kim Herman, Director of Compliance
As a wholesale insurance broker specializing in environmental coverages, we work with many non-admitted insurance carriers. In the non-admitted insurance market the strict state regulatory guidelines fall on the licensed surplus lines broker to follow when placing business with a non-admitted insurer. Beacon Hill is a licensed surplus lines broker in 49 states and we work very closely with each state to follow their guidelines and requirements. These have changed a bit over the past several years; many states have moved to an online surplus lines policy filing system and some have updated the forms they require from surplus lines brokers, producing agents, and insureds.
The Insured’s Home State
One of the biggest changes was the definition of an insured’s home state. The enactment of the Non-admitted and Reinsurance Reform Act (NRRA) in 2010 has prompted state regulations and filing processes to change. According to the NRRA Compliance Guide “The NRRA [reformed] the regulation of surplus lines insurance by limiting regulatory authority over surplus lines transactions to the home state of the insured and setting federal standards for the collection of surplus lines premium taxes, insurer eligibility, and commercial purchaser exemptions.” It has also helped to more clearly define the home state of the insured as “(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 100% of the premium of the insured risk is located out of the state referred to in clause (i), the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is located.”*
It is our responsibility as the surplus lines broker, with the help of the producing agent, to determine the home state of the insured when placing surplus lines business so that we know what surplus lines tax percentage, along with other fees, we should charge the insured. We pay close attention to this with all policies; however, we particularly focus on Environmental Impairment policies, project specific policies, and underground/above ground storage tank policies that cover a specific location. These tend to be less obvious when the insured’s mailing address is different than the location of the risk being insured. It is imperative that we correctly report the home state of the insured to the carrier so that our state filings match the filings of the non-admitted carrier to each state.
Beacon Hill works closely with state departments of insurance and surplus line associations to make sure we are requesting the most up to date state required forms from our agents and insureds. As the surplus lines broker, it is our responsibility to make sure the correct forms are on file for each insured, as well as using the correct forms to report information to each state. An example of this would be the Part C Affidavit that must be sent to the Excess Line Association of New York when reporting a new or renewal policy. This form was updated in July 2011 and the Excess Line Association of New York (ELANY) will no longer accept the older editions. We will attach the most current forms to our quotes and we prefer that agents use these forms when completing their pre-binding requirements.
We also attach our Beacon Hill/PartnerOne Coverage Construction and state E&S Form to our quotes. We ask that our agents initial the coverage construction section confirming the retro dates (if any) and verify that you and your insured agree that the coverage form structure is acceptable. If we are filing surplus lines taxes for the insured, the bottom portion of the form may ask you to confirm the tax and fee percentages, and other information that may be required by a state as well. Please keep in mind that all information provided on these forms allows us to comply with the guidelines for each state.
For more information on compliance issues, feel free to contact Kim Herman at (800) 596-2156.