SURPLUS LINES FAQ - Delaware Insurance Commissioner

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58. Do you require us to provide an original stamped copy of policies to the insured? 59. Is the stamp a rubber stamp or a paper insert? If rubber, do you provide this to us or do we need to order one ourselves? If paper, can we print the stamp? 60. Are there any font size or color requirements? 61. Does the binder/dec page require a signature? If so, whose signature is required? 1. What is Surplus Lines? Surplus Lines is defined as specialized property or liability coverage provided by a nonadmitted insurer in cases where the coverage is not available in the regular market through an admitted insurer. This insurance is only written through specially trained and licensed surplus lines brokers. 2. What is the difference between admitted companies and nonadmitted companies? Admitted or authorized companies hold a Certificate of Authority issued by the Commissioner showing that they are duly authorized to transact insurance business in this state. By becoming authorized in Delaware, these companies place themselves under the jurisdiction of the Delaware Insurance Commissioner, and are regulated by the Delaware Insurance Department. Most insurance coverage is placed through admitted insurers. Nonadmitted or unauthorized companies do not have a certificate of authority, but are deemed eligible to provide certain types of coverage if approved by the Department. Surplus Lines companies are not under the jurisdiction of the Delaware Insurance Commissioner, and though the Department monitors these companies, it is to a much lesser extent than the regulation of admitted companies. The regulation of surplus lines is largely accomplished by placing a number of requirements on the surplus lines brokers rather than the companies. 3. What special requirements are placed on surplus lines brokers? � Licensing: The Department requires that both individuals and business entities (agencies, brokerages, firms, etc.) be specially licensed for surplus lines. A SL broker must be an insurance producer, licensed for general lines of authority, who also obtains a SL license that allows him or her to sell, solicit or negotiate contracts of insurance with eligible nonadmitted surplus lines insurers. � Diligent Effort: Before placing any coverage with a nonadmitted insurer, the individual that represents the insured – usually the Producer but can be the SLB – must first seek the desired coverage from among admitted insurers who are writing comparable coverage in Delaware. � Inquiry into Financial condition of Insurer: Although the SLB is required to place business only with insurers on the Eligible SL Insurers list, the Commissioner is not required to determine the actual financial condition or claims practices of any unauthorized insurer on the list. Every SLB should make a thorough inquiry into the financial condition and operating history of the SL insurer before placing business with the company.
� Disclosure to Insured: Whenever a SL transaction takes place, the SLB must stamp (or print) the insurance contract with the wording specified in §1909. The stamp must also bear the name of the SL broker who procured the coverage. � Collect and Remit Taxes: Each SLB acts in a fiduciary capacity when handling the premium payments the policyholders entrust to him or her. That premium includes the 2% tax on insurance premiums. � Make Filings to the Department and Maintain Records: The Insurance Commissioner regulates the SL market through the requirements placed on SL brokers. It is vitally important that SL brokers and their staff submit the required information to the Department both accurately and efficiently. Every SL broker must maintain in their office a full and complete record of each surplus line policy procured by him or her, and §1915 details the types of information that must be kept in those records. According to 6 Del. C., §12A-112, records may be kept in electronic format. The records must be open to examination by the Commissioner at any time for 5 years after issuance of the policies to which they relate. 4. Is there a handbook that explains all the special requirements placed on SL brokers? Yes. In 2006 the Department prepared and published the SL Brokers’ Procedures Manual. The Manual was developed to assist resident and non-resident Delaware Surplus Lines licensees and compliance personnel with understanding the procedures that must be followed for compliance with the Delaware Surplus Lines Insurance Law. The Manual is in PDF format and can be searched electronically. It is available on the Department’s website. 5. Does Delaware require “due diligence”? Yes. Surplus lines insurance may be procured by SL brokers from non-admitted insurers only “…after diligent effort has been made to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this State…” §1904 (2). Only after representatives of admitted companies have declined to accept the risk can the surplus lines broker place the business with a nonadmitted company. 6. How many declinations are required? Three. Coverage must be sought in the admitted market before it can be exported to surplus lines. Three declinations are required as evidence that a “diligent effort” was made prior to placing the coverage with an unauthorized insurer. The declinations must come from insurers that are authorized to transact and actually writing that kind and class of insurance in this State but are not corporate affiliates of the SL insurer. 7. What form is used to show that a diligent search has been made? The Surplus Lines Statement of Diligent Effort -- Form SL-1904. It requires that either the Producer or the SL broker declare that this search has, in fact, been completed, and substantiates the declinations. This form must be completed as instructed and then retained by the SLB for each new surplus lines policy, when a policy renews, or when there is any material change to an existing policy.
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SURPLUS LINES FAQ - Delaware Insurance Commissioner

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