DC Surplus Lines Insurance 2 — Questions and Answers
Question 1: Under the Nonadmitted and Reinsurance Reform Act (NRRA), which state's surplus lines law and taxes govern a multi-state risk?
- The state where the insurer is domiciled
- The home state of the insured (the state where the greatest percentage of the insured's risk is located) (Correct answer)
- The state where the surplus lines broker is licensed
- The state where the insurance contract is signed
Correct answer: The home state of the insured (the state where the greatest percentage of the insured's risk is located)
Under NRRA, the home state of the insured (where the greatest portion of the risk is located) has sole regulatory and taxing authority over surplus lines placements.
Before NRRA (effective 2011), multi-state surplus lines placements required compliance with each state's rules and tax payments to multiple states. NRRA designated the insured's home state as the sole regulator and tax collector for surplus lines premiums on multi-state risks, simplifying the process.
Question 2: What is a 'white list' (eligible insurer list) in DC surplus lines regulation?
- A list of admitted insurers approved to write all lines in DC
- A list of non-admitted insurers approved by DISB as eligible to receive surplus lines placements from DC brokers (Correct answer)
- A list of insureds approved for surplus lines coverage
- A list of approved surplus lines brokers in DC
Correct answer: A list of non-admitted insurers approved by DISB as eligible to receive surplus lines placements from DC brokers
DC's eligible insurer list (white list) contains non-admitted insurers that DISB has approved as financially sound enough to receive surplus lines placements.
DC surplus lines brokers must place coverage only with non-admitted insurers on DISB's eligible surplus lines insurer list (ELSIE list or white list). To be listed, non-admitted insurers must meet minimum financial standards. The list protects DC policyholders from financially unstable non-admitted carriers.
Question 3: How must a DC surplus lines broker inform the insured that the policy is being placed with a non-admitted insurer?
- Verbal disclosure at the time of sale is sufficient
- A written disclosure stating the insurer is non-admitted and not covered by the DC guaranty association must be provided before or at policy delivery (Correct answer)
- No disclosure is required for commercial risks
- Disclosure is only required if the premium exceeds $100,000
Correct answer: A written disclosure stating the insurer is non-admitted and not covered by the DC guaranty association must be provided before or at policy delivery
DC law requires written disclosure to the insured that the surplus lines insurer is non-admitted and that guaranty association protection does not apply.
DC surplus lines regulations require the broker to provide a written stamping or disclosure on the policy (or a separate notice) informing the insured that the coverage is with a non-admitted insurer and that the DC Insurance Guaranty Association does not cover this policy. This disclosure must be provided before or at the time of policy issuance.
Question 4: What is the primary advantage to a DC insured of using a non-admitted surplus lines insurer over an admitted insurer?
- Guaranty association protection is stronger for surplus lines
- Non-admitted insurers can negotiate custom policy forms and pricing for unusual risks (Correct answer)
- Non-admitted insurers are supervised more strictly than admitted carriers
- Premium taxes are lower for surplus lines policies
Correct answer: Non-admitted insurers can negotiate custom policy forms and pricing for unusual risks
Non-admitted insurers are not restricted to filed rates and forms, giving them flexibility to craft custom coverage and pricing for unique or difficult risks.
Admitted insurers must use rates and forms approved by DISB and have less flexibility for unusual risks. Non-admitted surplus lines carriers are exempt from these requirements, allowing them to tailor policies and price risks the admitted market won't cover. The trade-off is loss of guaranty fund protection.
Question 5: A DC surplus lines broker files a quarterly affidavit with DISB. What does this affidavit confirm?
- That all surplus lines business was first declined by at least one admitted carrier
- That all surplus lines transactions complied with DC law, including diligent search and tax remittance (Correct answer)
- That the broker's E&O policy is current
- That all non-admitted insurers used are A-rated by AM Best
Correct answer: That all surplus lines transactions complied with DC law, including diligent search and tax remittance
DC surplus lines brokers must file affidavits with DISB confirming that placements complied with the diligent search requirement and that surplus lines taxes were properly remitted.
DC requires licensed surplus lines brokers to periodically (often quarterly) file sworn affidavits with DISB confirming compliance with the diligent search requirement, proper disclosure to insureds, and timely remittance of surplus lines premium taxes. This creates an audit trail for regulatory oversight.
Question 6: Which of the following risks in DC would NOT typically require surplus lines placement?
- A $50 million DC hotel with an unusual construction type
- A standard 3-bedroom homeowner's property in a low-risk DC neighborhood (Correct answer)
- A DC nightclub with prior assault-and-battery claims
- A professional sports team's travel accident policy
Correct answer: A standard 3-bedroom homeowner's property in a low-risk DC neighborhood
A standard homeowner's property in a low-risk area is easily placeable in the admitted market—it does not require surplus lines.
Admitted insurers readily write standard residential properties. Surplus lines is reserved for non-standard, high-risk, or unique exposures the admitted market declines. Hotels with unusual construction, nightclubs with violence histories, and specialty sports policies are classic surplus lines placements.
DC Surplus Lines Insurance 2
Under the Nonadmitted and Reinsurance Reform Act (NRRA), which state's surplus lines law and taxes govern a multi-state risk?