Insurance Insights: What is a Broker Responsibility State?
Have you ever heard the term Broker Responsibility state? What does that mean? It is not nearly as daunting as it may sound.
In the non-admitted market, carriers are not required to file their rates and forms to a state department of insurance for approval. Therefore, there are no form or rate regulations. However, non-admitted carriers are required to meet certain minimum financial guidelines as mandated in the state statutes. Because the surplus lines broker is the regulated entity in the non-admitted market, it is the surplus lines brokers’ responsibility to verify and confirm that the non-admitted carrier meets these minimum financial requirements in the state where the risk exposure is located–the home state of the insured.
Fortunately, many states provide a list of approved or authorized surplus lines carriers to surplus lines brokers’ writing business in that state. These states determine if a non-admitted carrier meets the minimum financial requirements. Surplus lines placements may only be written through one of the carriers listed on the states’ authorized or approved carrier listing. The states’ call these lists by varying names, including:
- White List
- Authorized Insurer List
- Unauthorized Insurer List
- Approved Authorized Insurer List
- Eligible Surplus Lines Insurers
As you can see, there is no formal or consistent naming mechanism. The only approved carrier listing consistent among all states is the NAIC Quarterly Listing of Alien Insurers. As mandated in the Non-Admitted and Reinsurance Reform Act (NRRA), all states must recognize and accept non-admitted insurance placements through any Alien carrier shown on the NAIC Quarterly Alien Listing, which is updated quarterly, as authorized carriers approved to do business in their states.
To complicate matters further, some non-admitted carriers may be approved in one state but not approved in another state. Additionally, a carrier may be an approved non-admitted carrier in one state and a licensed admitted carrier in another state. For example, did you know that Lexington Insurance Company is a licensed admitted carrier in Delaware but a non-admitted carrier in all other states?
So then, what exactly is a Broker Responsibility State?
A state that does not maintain an “official” list of eligible surplus lines carriers for that state is considered a Broker Responsibility state. This means the surplus lines broker is responsible for determining if a non-admitted carrier meets that state’s financial criteria as outlined in the state statutes. Currently, there are approximately 20 states that do not maintain a list of eligible or authorized surplus lines carriers and are considered Broker Responsibility states.
Of these 20 Broker Responsibility states, a few provide approved non-admitted carrier listings for surplus lines brokers, sort of. For example, Illinois is a Broker Responsibility state. However, the Surplus Lines Association of Illinois maintains a list of unacceptable or not approved surplus lines carriers on their website, also known as a Black List. If a non-admitted carrier is on the Illinois list of unacceptable carriers, then the surplus lines broker cannot place insurance coverage through that carrier.
California is also a Broker Responsibility state, yet the Surplus Line Association of California provides a listing of approved surplus lines carriers instead of unacceptable carriers. In California, if a non-admitted carrier wants to be added to the list of approved carriers, the non-admitted carrier must file an application with the Surplus Line Association of California and must meet the minimum state financial requirements.
As with many “rules” in the surplus lines industry, there are, of course, exceptions. A few states have provisions for insurance coverage placed through non-admitted carriers not shown on any state-approved listing.
List or no list, one thing remains…
Whether a Broker Responsibility state provides a listing of approved non-admitted carriers or not, it is ultimately the surplus lines brokers’ responsibility to make sure insurance coverage is placed with a non-admitted carrier that meets the financial criteria of the home state of the insured. The surplus lines broker must also ensure compliance with all state statutes when placing insurance in any state through non-admitted carriers in the Surplus and Excess Lines market.
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Julia is a regulatory and compliance director with more than 20 years of experience in the insurance industry. She has extensive knowledge of surplus lines tax and licensing guidelines. For the past ten years, Julia has taught the Surplus Lines Fundamentals course for the Securities and Insurance Licensing Association (SILA). She currently oversees business development at InsCipher.