Do It Right the First Time: Surplus Lines Compliance

As a producer, keeping abreast of the surplus lines laws and regulations in your own state is often a difficult task. When one wanders across state borders, the challenge becomes even more daunting, sometimes requiring an entire staff of compliance personnel. It complicates matters even further when producers adopt a “write it now and figure out the rules later” attitude. As a result, they subject themselves and their firms to costly delays and even costlier fines.

Read the rules before playing the game
Producers and insurance firms have a number of resources available that will cut the compliance monster down to size. First and foremost is instituting and enforcing a culture throughout your organization that promotes understanding the rules before you play the game. Without this, none of the other resources will help.

Beyond this crucial first step, there are some relatively easy places to look for the answers you need. Often the most difficult piece is knowing where to start. On the Surplus Line Association of Illinois Web site (www.slai.org), we have tried to bring some of the most helpful resources into one place to create a “table of contents” for compliance resources.

There are links on the SLA Web site to the associations of all 15 states that maintain “stamping offices.” The rules in these states tend to be well documented since these organizations have extensive online information.

After a little browsing, you will usually land face-to-face with some sort of procedures manual. While these documents are not the kind of things you want to tackle before your morning coffee, they do contain the information you need to know. You can also find contact information for the stamping office and call them with questions. We love to hear from people who really want to know the right way to do things! You can also sign up for e-mail notification of bulletins and other information.

The other 35 states
The SLA Web site also has links to the insurance departments of all 50 states. With a little digging around, you can usually find the appropriate statutes and regulations that apply to surplus lines. Additionally, under “Other Links/Multistate Surplus Line Resources,” we provide information about how to obtain “Annotations to Surplus Lines Statutes,” published by the American Bar Association, and “Licensing, Countersigning & Surplus Line Laws.” These two books are like the “CliffsNotes” for surplus line rules in all 50 states.

Multi-state issues
When one risk covers more than one state, you are faced with trying to comply with multiple sets of rules that are never uniform and too often conflict with one another. This is probably the trickiest area of compliance in the surplus lines market. In this case, the best thing you can do is to comply with each state’s laws and, when they conflict, strike the fairest compromise you can devise.

In my experience, if a producer is ever required to detail how they allocated premium between states or some other multi-state issue, most regulators recognize that the producer did his or her best to comply. In these situations, if the regulator doesn’t agree with the solution you came up with, they’ll simply suggest a correction rather than penalize you. Having documentation that proves you attempted compliance will go a long way to prove your point.

When doing surplus lines business in multiple states, the initial learning curve can be quite steep. But if you keep an internal record or matrix of the rules in the various states as you figure them out, the job gets easier the more often you do it.

Finally, don’t be afraid to call state regulators and ask if you have compliance questions.

If you’ve already completed a transaction and are worried that you’ve violated laws, you’re probably reluctant to call any regulatory authorities to get the right answers. So do it ahead of time. Do it right–the first time. Stamping office staffers can be very helpful and even most regulators are happy to help when you’re trying to figure out the rules in advance.

David Ocasek joined the SurplusLine Association of Illinois in 1991 and has been executive director since 1998. He also teaches accredited continuing education courses for Illinois insurance producers. He can be reached at docasek@slai.org.

Topics Legislation Excess Surplus Illinois