Starting July 1, 2017, the Surplus Lines Association of Utah has selected the InsCipher software system to improve and expedite the review & management process, generate accurate reports and data, and to provide real-time data analysis from the state.
With built-in technology to automate compliance reviews, the InsCipher Program will also increase staff efficiencies and provide the immediate status of your submission along with a detailed invoice.
There are two major divisions of the property and casualty insurance marketplace. They are referred to as the “admitted market” and the “non-admitted” or “excess and surplus lines market.” The admitted market consists of insurance companies that have made an application to the Insurance Commissioner, met certain legal and financial requirements, and have been issued a certificate of authority by the commissioner which allows them to solicit insurance in Utah. The admitted market represents about 97% of the property and casualty premium written in Utah. These companies must submit their rates and forms to the commissioner for review. They are also subject to formal financial examination by the commissioner. Admitted companies may solicit directly or through appointed agents who have been licensed by the department. The law also requires that admitted insurers participate in a state “guaranty association.” If one admitted insurance company becomes insolvent, all other admitted insurance companies that write the same type of insurance are required to contribute to a fund that is used to help pay claims outstanding against the insolvent company. This provides some protection to the insurance buyer.
The excess and surplus lines market is a specialty market. It is comprised of companies that are “recognized” but not issued a certificate of authority by the Insurance Commissioner. These companies cannot directly solicit insurance business so they offer their products through licensed surplus line producers. The commissioner has limited regulatory authority over these non-admitted companies. He has no authority over their rates and forms and these are not filed with the department. These companies are not subject to a formal financial examination by the commissioner. These companies do file annual financial statements with the Insurance Department and these are available to the public for review. Surplus lines insurance companies are specifically prohibited by law from participating in the guaranty association.
The answer to the question lies in the need for an innovative and imaginative marketplace for those insureds who require extremely large limits of protection or who have exposures of such unusual nature that the admitted companies are unable to respond to their insurance needs. Surplus lines companies are permitted to write insurance because they provide a market for hard-to-place coverages-coverages that admitted insurers usually will not write.
This need is not confined by state or national boundaries, nor is it limited to any historical period. While non-admitted premium are but a fraction of the total insurance business, non-admitted insurers serve a vital role by fulfilling the needs of the insurance consumer.
In Utah, the Insurance Department and the Surplus Line Association work closely together. The Utah Insurance Code specifically provides for a surplus lines advisory organization. The commissioner has designated the Surplus Line Association of Utah as the advisory organization and has authorized it to review surplus lines submissions, assess a stamping fee, and collect the surplus lines premium tax on behalf of the commissioner. The Surplus Line Association of Utah assists the Utah Insurance Commissioner in facilitating and encouraging compliance by its members with the laws of Utah and the rules of the commissioner concerning surplus lines. The Association also advises the Commissioner concerning various aspects of the surplus lines market.
Because the activities of the Association are important to the commissioner’s oversight of the surplus lines market, the commissioner has ruled that each surplus lines producer must be a member of the Association. The Association regularly communicates with its members and serves as a major means of exchange between the Insurance Department and licensed surplus lines producers.
Utah law requires that each surplus lines transaction in this state be examined to determine whether it complies with the surplus lines tax, solicitation and placement, and disclosure requirements of the law. The responsibility for this review has been delegated by the Insurance Commissioner to the Surplus Line Association of Utah through a contractual arrangement.
The surplus lines producer, having concluded that the risk appears to be proper for placement, makes a filing with the Association. This filing includes a copy of the policy and is accompanied by a submission form. If a copy of the policy is not available, a certificate, cover note, or other confirmation of insurance should be submitted within sixty (60) days of the date the policy was first effective.
The following statement must be affixed to all surplus lines policies: “The insurer issuing this policy does not hold a certificate of authority to do business in this state and thus is not fully subject to regulation by the Utah Insurance Commissioner. This policy receives no protection from any of the guaranty associations created under Chapter 28, Title 31A.”
Submissions will be examined to ascertain whether they comply with the Utah law, the Commissioner’s rules, and the Association’s requirements. Unless the Association office notifies the surplus lines producer that the filing is incomplete, the placement then stands as being in compliance with the law for the term of the policy. Submissions which do not appear to be in compliance will be submitted in synopsis form to the Board of Directors. If it is the conclusion of the Directors that the placement is in violation, the surplus lines producer will be notified and told what action must be taken. If the producer wishes to appeal the Board’s decision, he/she is entitled to meet with the Board of Directors in order to discuss the matter further.
Monthly statements will be emailed to all surplus line offices. This will be an itemized statement showing the business filed during the preceding month. Taxes and fees will be indicated. The surplus lines producer is responsible for payment of the taxes and fees to the Surplus Line Association within the time specified.
All insurance premiums written in Utah are assessed a premium tax. These premium taxes go into the state general fund. Admitted insurance companies deduct the tax from the premiums they collect and pay it directly to the Utah Tax Commission. Most insurance buyers do not realize that the premium they pay for their insurance policy includes a state tax. Because surplus lines insurance companies are not directly regulated, the tax must be collected directly from the insured.
Utah law makes the insurer, all producers involved in the transaction, and the policyholder jointly and severally liable for the payment of the surplus lines tax. However, in practice, it’s the responsibility of the surplus lines producer to make sure that the surplus lines tax is calculated correctly and paid by the insured. It is unlawful for the producer to pay the tax for the insured. The surplus lines producer is responsible for remitting the tax to the Surplus Line Association, which then remits it to the Insurance Department.
The Utah surplus lines tax rate is currently 4.25% of all premium and fees, except the stamping fee. Utah law also requires that a penalty be assessed if the tax is not paid in accordance with the deadlines in the commissioner’s rule. The penalty is 25% of the tax due, plus 1-1/2% per month from the time of default until full payment of the tax.
The Utah stamping fee is currently 0.15% (.0015) of all premiums and fees. If stamping fees are not paid when due, the commissioner or advisory organization may impose a penalty of 25% of the fee due, plus 1-1/2% per month from the time of default until full payment of the fee.