Late Filings of Surplus Lines Policies Draw Fines in Texas

If enforcement actions taken by the Texas Department of Insurance this year in response to late filing of surplus lines insurance policies with the state stamping office were meant to capture the attention of managing general agents doing business in the state, that effort has been successful.

Many MGAs have been caught off-guard by fines — some of them hefty — imposed by Texas Insurance Commissioner Mike Geeslin in response to late filings with the Surplus Lines Stamping Office of Texas (SLSOT) in 2007, 2008 and 2009.

“Current law indicates that a surplus lines policy must be recorded within the latter of 60 days of issuance or effective date” [of the policy], explained Phil Ballinger, executive director of SLSOT. Speaking to an audience of surplus lines professionals on Nov. 8, Ballinger said that in March 2010 SLOT Counsel Alex Gonzales notified the stamping office board that the department had begun disciplinary actions against late reporting surplus lines agents. In April, the insurance department began posting notice of its actions against MGAs on the TDI Web site.

“In the month of April there was one action concluded for a fine of $1,000,” Ballinger told attendees at the annual meeting of the Texas Surplus Lines Association in Austin. “In May there were six — the largest fine being about $3,200. In June, there were five completed — the biggest fine $1,600. July, two completed, a $4,700 fine was the biggest. August, five completed, $3,500. September, five completed, $11,700 was the biggest fine that month.”

In late October and early November, two North Texas agents each received fines amounting to more than $50,000. Two Houston-area agents also received hefty fines during that period, Ballinger said, one for $89,000 and one for $117,000.

“These are official commissioner’s orders,” Ballinger said. “They are legal enforcement actions that are brought by TDI enforcement attorneys.”

His underlying message: Ignore them at your own peril. “If you receive one, at conclusion you must report the action to every state where you hold a license. That’s one of the onerous provisions,” Ballinger said. He added that the fines being assessed by TDI appear to be based on a calculation of a dollar per day for each transaction filed late.

Ballinger said that SLSOT data shows that for the 2007 filing year, 345 agents were cited and 7,047 policies were shown as being filed late. “That represented 1.6 percent of total filings,” Ballinger said. In 2008, 356 agents and 5,582 late filed policies represented 1.3 percent of total policies filed. In 2009, 385 agents, 6,712 policies filed late, represented about 1.6 percent of total policies.

“One point six percent I would argue is a fairly good compliance rate,” Ballinger said. “Nonetheless that’s 6,000 policies, nearly 7,000 policies.”

The Law Is the Law

Addressing his comments to Commissioner Geeslin, who also spoke at the TSLA annual meeting, one attendee complained that actions of the department’s enforcement staff have been “highly unfair” and “unbalanced.”

Geeslin responded that while he understood the concern, as far as enforcements go, the “buck ultimately stops with me. It’s my signature on those enforcements,” he said.

It’s important to understand, that the “law is the law,” Geeslin added, and that it’s his responsibility to enforce the law.

Ballinger reiterated the refrain that “the law is the law.” He acknowledged that while many MGAs do their “best to comply with the law. There are other agents that frankly don’t appear to be quite as concerned about it.” Those agents, Ballinger said, will likely continue to see enforcement actions.

Under state statute enforcement attorneys at TDI have relatively few options, Ballinger explained. In meetings with TSLA and SLSOT representatives, TDI attorneys “made it plain that under the existing insurance code there’s no other method for the department to take action. Other than through a rule process that identifies the imposition of fees. Right now there’s no such rule in place,” he said.

Sometimes policies are submitted to SLSOT but they are not processed for various reasons. Submission of “a policy to the stamping office does not automatically mean it was filed,” Ballinger warned. “If it was returned to you as unprocessed don’t sit on it for eight months. That’s been some of the big causes of these late filings.”

He said the stamping office would begin sending out monthly reports on late filings – currently SLSOT sends out annual reports- in February 2011. He advised agents of several steps they can take to help ensure their filings are recorded appropriately.

“Make sure your policies have an issue date if at all possible. … If you need to use the date is was received in your office and date stamped, and the date that you electronically received it from the carrier, that’s acceptable as an issue date.

“If the policy was tagged in our electronic filing system it was not processed. You need to make sure that your people take care of tags in the electronic filing system,” Ballinger said.

Finally, reconcile the reports, identify errors and respond to them immediately.

Ultimately, Ballinger said, whether MGAs like it or not, “You’ll have to report what you do to somebody and there will be a time deadline to do that.”

Topics Texas Agencies Excess Surplus Insurance Wholesale