20 things you should know about deductible insurance in 2020 (2023)

As we enter a new decade, the excess insurance market has never been stronger. The growth of specialized products and the demand for insurance protection in an increasingly dynamic technological environment requires a fresh look at many of the legal and regulatory rules that apply to policyholders, brokers and surplus insurers alike.

This article presents 20 "Frequently Asked Questions" from insurance professionals who have a basic understanding of excess insurance policies and deductibles, but are trying to understand the nuances of specific federal and state excess insurance laws.


1. What laws govern the excess lines insurance market?

While excess lines insurance companies are exempt from filing fees and forms, excess lines insurance is not completely exempt from government regulation. For example, many states expressly apply cancellation and nonrenewal requirements to their excess market policies. However, some states that traditionally prohibit indemnity insurance allow for-profit insurers to assume such risks. Jurisdictions also differ as to whether domestic defense regulations and claims-based policy standards apply to the over-the-line market, to name a few.

2. Can personal and commercial car insurance be purchased from a surplus insurance company?

It usually depends on the purpose of the insurance. Most states specifically require that any auto insurance that attempts to meet the driver's "financial responsibility" requirement under state motor vehicle laws be offered only by an insurance company licensed (licensed) in the state. In many jurisdictions, "excess" insurance beyond the financial liability layer can be provided through the redundant lines market. In addition, some (but not all) states allow financial liability claims for freight, "Hired Not Owned Cars" (HNOA) and other types of commercial auto insurance to be fulfilled through the overline market.

In the commercial market, some states allow financial responsibility requirements to be met through excess lines policies for certain types of commercial vehicles. For example, many states have passed legislation in recent years that allow financial responsibility requirements for drivers of "transportation network companies" or "TNCs" such as Uber and Lyft to be met through the redundancy market. However, states differ as to whether commercial vehicle programs can meet the financial responsibility requirements for their on-duty custodians outside of the TNC context.

3. Does the Terrorism Risk Insurance Act (TRIA) apply to overline insurance?

TRIA applies to excess lines insurance policies, and depending on the nature of the policy, TRIA may even include insurance coverage issued to exposed non-US persons residing in the United States. Under TRIA, an insurer is required to “offer” terrorism coverage in certain classes of commercial property and casualty insurance. The term "insurer" is defined in TRIA and includes all U.S. licensed insurers as well as excess lines insurers. Under TRIA, whether an insurer must "make available" terrorism coverage depends on whether the risk itself is located in the United States (or in relation to an airline, flagship, or because of a U.S. mission), and not where the insured lives.

4. Is the policyholder's consent required if an insurance company wishes to transfer an excess insurance policy to another insurance company?

Most states do not expressly apply their policy transfer consent requirements to overline policies. However, several states still require the excess lines insurer to comply with applicable policyholder notification requirements. Furthermore, the general principles of contract law could still prohibit the transfer without the consent of the relevant policyholder.

Some states have begun to enact legislation that explicitly allows the "transfer of insurance business" of insurance policies between insurers, applicable to both authorized and excess markets.


5. Which policies can a surplus insurance company take out?

It depends on the state. While the Non-Attachment and Reinsurance Reform Act of 2010 (NRRA) allows the placement of excess property and casualty insurance coverage, several states, such as New York, expressly prohibit certain lines of insurance that are perceived as traditional lines of insurance. property and casualty insurance in other states is not exported to the unauthorized market as financial guarantee insurance. Some states also allow disability and workers' compensation insurance through the excess market.

The National Association of Insurance Commissioners (NAIC) has been pushing in recent years to introduce model legislation that would allow limited forms of health insurance (including short-term health insurance, international health insurance and additional disability) to be closed based on excessive rules.. . , which has also been adopted by some states.

6. If a state only allows excess lines policies to provide property and casualty coverage, can the policy provide "additional" non-P/C coverage under a multi-peril insurance product?

While some of these states allow for flexibility in practice regarding the issuance of non-property and casualty insurance coverage on an excess basis, the general answer is no. For example, a travel insurance policy that reimburses the policyholder for medical expenses incurred while the policyholder is traveling provides the policyholder with a type of health insurance coverage that may not be offered in many states through the over-the-line market.


7. What policies are required?

Although overline insurance companies are generally exempt from fees and form filing requirements, most states with overline associations require the overline policy to be filed, and some of these associations may refuse to "submit" the policy. , charges a fee and acknowledges that the policy is acceptable under state deductible laws) if it provides insurance coverage in violation of applicable law.

At least one jurisdiction (New York) also requires producer agreements for excess lines to be filed with insurers that also provide binding authority for excess lines, and the New York Excess Lines Association encourages the use of specific language in such agreements.

8. Who is responsible for paying excess line premium tax?

Traditionally, the excess lines broker is legally responsible for paying taxes on excess lines premiums, but some states also make the policyholder and/or the insurance company liable for such taxes if the broker fails to meet its legal obligations.

In most states, excess lines allow the broker to pass the tax to the insured. However, some states consider the insured's payment of excess line premium tax to be an additional "fee" imposed on the insured, and as a result, the broker obtains written confirmation from the insured that his payment of the tax is in addition to the premium in accordance with the insured's insurance policy.

9. Where is tax paid on excess line premiums on group insurance?

The NRRA usually requires that all excess taxes on line premiums be paid to the insured's "home state." According to the NRRA, the home state of an affiliated group is the state of the group member receiving the highest percentage of awards. An "affiliated group" consists of entities under common control.

However, with respect to non-affiliated groups (including Risk Purchasing Groups or "RPGs"), many states take the position that each certificate issued is its own policy and that the home country of the holder/member of the certificate is considered the "state of origin " for each of these certificates. and require premium tax on excess lines to be waived accordingly.

10. Can brokers with surplus lines charge their clients a different premium than the premium stated in the insurance policy?

It depends on the jurisdiction. Some states expressly prohibit all types of brokerage fees, whether charged on permitted or excess line positions. Other states are more tolerant, especially of the surplus wire market. For example, Florida prohibits most types of broker fees charged on licensed insurance policies, but in 2019 it amended its excess insurance laws to specifically allow the charging of "reasonable" broker fees on excess insurance policies.

Almost all states that allow excessive line fees require the policyholder to provide written consent before charging such a fee, along with various information about brokerage fees.


11. How is the requirement of diligent search fulfilled?

Assuming there is no exception to the due diligence requirement, most states require that three (3) denials be obtained from licensed insurance carriers, but this is not uniform across the country. For example, in Maine, according to Bulletin 439 (November 26, 2019), "completion of a certain number of examinations does not mean that the manufacturer has met this requirement." In contrast, some states (for example, Louisiana) have eliminated the diligent search requirement altogether.

Some states require proof of rejection of acquisition to simply be kept in the excess lines broker's offices; while others require claims to be filed with the appropriate department of insurance or excess line stamps office. Several states expressly require that careful research be repeated each time a particular policy is renewed.

12. Should due diligence be performed at risk?

Most of the time. Some states have limited exemptions for RPGs, allowing a single search for all RPG members living in that state for a specified period. In contrast, many states require that careful research be conducted for each certificate holder under a non-RPG group policy.

13. What qualifies as a permissible deviation?

Many states do not allow price to be the only factor in obtaining a declination. In addition, some states do not recognize an opt-out regarding a multi-risk policy where the components of such a policy could be written by the permitted market (and some states, such as California, allow export only if the Commissioner's approval has been granted). Most states also do not recognize multiple denials obtained from either an insurance company or its subsidiary.


14. How does a foreign (non-US) insurance company qualify for US deductibles?

Foreign (non-U.S.) insurers may cancel excess U.S. insurers if they are listed on the Quarterly List of Foreign Insurers (Quarterly List) maintained by the NAIC, which requires filing, among other things. and establishing a trust fund to guarantee American policyholders. Information reported to the NAIC must be updated annually. In addition, most foreign insurers are listed on government eligibility lists or "white lists", which continue to maintain these lists to signal to the market that the insurer is approved by the government. Quarterly and whitelist registrations and associated US management obligations are often maintained for foreign insurers by US regulators or other US-based representatives.

Another increasingly common method of entering the surplus lines market is through the creation of a "domestic surplus insurance company" incorporated in a state for the sole purpose of guaranteeing surplus lines coverage throughout the country. Currently, 21 states have enacted domestic surplus line legislation.

15. What activities can be carried on by a surplus insurance company in a state?

While all states require overline insurance to be placed through an overline broker, some US jurisdictions even restrict the presence of an overline insurance company or its employees within their borders. For example, California generally believes that only overline brokers may be physically present in the state in connection with overline transactions, although home insurers affiliated with an overline insurer may perform certain administrative functions unrelated to overline policies . Other jurisdictions, such as New York, have enacted broader exemptions for licensed excess lines affiliates to perform certain governmental functions on their behalf.

Depending on the state, excess lines insurers may not always be able to take advantage of various exemptions to licensing laws that are often available to licensed insurers, such as exemptions from insurance carrier licensing requirements that apply to licensed insurers in many states.

16. What marketing activities can surplus insurance companies and brokers do?

Several states impose significant restrictions on the sale of unauthorized products. For example, California and New York generally prohibit the marketing of excess insurance products unless very strict standards are met, including the avoidance of targeted solicitation, restrictions on the distribution of certain policy terms, lack of attention to unauthorized insurers (with exceptions), and the inclusion of disclaimers regarding the unavailability of certain products for policyholders in the state.

As online and app-based marketing tools become more widespread, the redundancy of advertising law is once again under the scrutiny of insurers, brokers and legislators.

17. Does an individual non-life insurance producer also have to be licensed as a surplus insurance broker to underwrite insurance on behalf of a surplus insurance company? What if the individual acts as a retail producer for a wholesale profit broker?

When a person provides coverage on behalf of a profit lines brokerage, the person must have a profit lines brokerage license; a "regular" property and casualty license is not enough. However, most states allow a non-profit lines manufacturer to act as a retail broker by facilitating a transaction through a licensed profit lines broker. However, special attention should be paid to activities carried out by duly licensed entities to ensure that legal boundaries are not crossed, including but not limited to ensuring that the overline broker is the only one licensed to negotiate insurance with an unauthorized insurance company.

In addition, many states allow the retail broker to carefully investigate the permitted market, although states differ as to whether the retail broker or wholesale broker must maintain evidence of due diligence and make due diligence statements. search requirements.

18. Can excess lines brokers place insurance with non-qualified and unauthorized insurers on a direct purchase basis?

Overline brokers in the insured's home state are generally prohibited from assisting insureds in the "direct purchase" (also known as "independent acquisition" or "direct placement") of insurance coverage from unauthorized insurers. Instead, most states require a potential policyholder to leave their home state and obtain insurance coverage directly from the unlicensed insurance company (or through a non-domiciled broker) in a jurisdiction where the insurance company is licensed. However, some states allow brokers to act on behalf of their policyholders and physically leave the state to obtain the desired insurance coverage, provided the broker follows applicable direct purchase principles as if he were the policyholder himself.


19. Which person or entity is responsible for violations of the Overline Act?

Traditionally, the overline broker is more subject to penalties in the form of fines and penalties for violating applicable overline insurance laws as a licensed insurance carrier. However, several states have enacted laws permitting inspection of the books and records of unlicensed insurance companies and the possibility of imposing fines in connection therewith. Additionally, there have been some cases in recent years where states have imposed consent orders that impose fines and penalties on manufacturers, insurers, and even policyholders (particularly in the context of group policies where primary policyholders such as associations market excess insurance products). ).

20. What is insurtech and how is it affecting the surplus line industry?

The term insurtech refers to the wave of technological innovation affecting the insurance industry, from the way insurance is sold and administered to the types of risks that insurance policies have evolved to cover.

The profit industry both benefits and suffers from the rise of insurtech. Using dynamic pricing models and other algorithmic underwriting guidelines takes time to go through the market permitting process of approving rates and forms typically bypassed by excess lines insurers. However, overline products must be acquired through overline brokers, which limits direct transactions to consumers. In addition, overline brokers must carefully seek out the permitted market (no exception), making it difficult to quickly attach coverage over the Internet or application-based products.

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