Making the Case for Outsourcing Surplus Lines Reporting
Ask any veteran of the E&S business, and they will likely tell you the taxation and reporting requirements imposed by the various states are the most significant barrier to growing an insurance business in the non-admitted sector. Because each state imposes its own rates, fees, and reporting schedules, maintaining surplus lines compliance is a never-ending battle. Just when you think you have a handle on what’s required, the states change their rules, and if you are not proactive, you will soon fall behind in the compliance game. Falling behind, of course, will result in steep penalties and fees, adding to the cost of writing E&S business.
For many reasons, agencies decide to outsource surplus lines reporting to a third party. We’ll cover some of the more common reasons that people outsource and help you decide if outsourcing might be the right fit for your agency.
1. Minimal time spent on compliance research
First and foremost, one of the main reasons agencies outsource is that they don’t have time or resources to do compliance research. This is especially true in startups, where human resources are already stretched thin. It’s already a huge task to compile a database of all the state forms, rules, regulations, and fees—as this information is not available in a central location for easy consumption! Even if you happen to make it through that chore, you must keep in mind that these rates and fees are constantly changing. If you’ve ever shoveled snow during a snowstorm, you might be familiar with the concept. By aligning yourself with a third-party filing service, you outsource this research requirement to a dedicated group and transfer the onus to their organization to have the required up-to-date information available.
2. State-Specific Expertise
A benefit of signing up with a third-party filer is that you get access to the filing company’s collective experience. A company like Inscipher has filed hundreds of thousands of policies across all 50 states, and chances are there is nothing you can throw at us we haven’t seen before. A reputable filing service will have experts in the specific states in which you’re writing business who know how to anticipate each state’s unique challenges. That specialist will probably have a working relationship with the state offices in question and will be able to have an in-depth and personal conversation on your behalf if issues arise.
3. Less Risk of Turnover
As a business owner, a recurring fear is that the good people will quit or leave for another job or, less ominously, retire. At Inscipher, we see this happen to agencies all the time. By outsourcing to a third-party filing service, you don’t have to worry about the potential that somebody is going to up and leave, and with their departure, your ability to maintain E&S tax compliance.
4. Reduced Liability
Outsourcing is a time-tested way to decrease liability for any company. You have fewer people to manage, plus you can avoid the accompanying insurance requirements, benefits, taxes, and vacation time. Perhaps most importantly, by outsourcing surplus lines compliance, you offload the responsibility of making sure taxes and reports are paid accurately and on time. The right group will back up what they do and assume liability for any errors within their control.
5. Simplified Accounting
Rather than having to visit each state site to make surplus lines tax payments, a third-party filer will simplify the payment process by consolidating your taxes and fees into one single invoice, and in turn, make the payments on your behalf.
Keep in mind not all third-party filers charge the same. The company you choose should have transparent and straightforward invoices, so you know exactly what you are being charged for. At InsCipher, we’d be happy to go over invoices with you, whether it’s our invoice or that from another filing company, to help you precisely understand the charges.
6. Zero Reporting
When reporting surplus lines taxes, not only do you have to keep track of where you are writing business, but you also need to keep track of where you AREN’T writing business. Reporting zero premium to a state is referred to as zero reports or zero reporting, and these can be due either monthly, quarterly, semi-annually, or annually. Your filer should monitor the states where you are surplus lines licensed and, if necessary, file those zero reports automatically.
Ultimately the decision to outsource will depend on the goals of your agency. What do you want to be? Are you more sales-focused? Like most agencies today, you are probably focused on increasing sales and growing your business. Outsourcing gives you the freedom to grow as fast as you want without having to worry about the associated compliance headache.
Of course, outsourcing isn’t for everyone, and there may be specific reasons to keep the process in-house. If you wish to keep filing independently, InsCipher has created tools to simplify the management, filing, payment, and reporting of your agency’s surplus lines policies. If you’d like to know more, we’d love to hear from you.
InsCipher is an insurtech company providing software and services that are revolutionizing inefficient insurance processes. Save your agency time and money by automating surplus lines compliance, filing, and reporting. Want to learn more? Request a free demo today!
Jason has over 17 years of experience in sales and marketing, focusing on energy and software startups. Jason learned of InsCipher in 2019, and quickly realized the potential the company had to offer the world of insurance. He eagerly accepted an opportunity when approached by the InsCipher team, and is proud to be a part of InsCipher’s accelerated growth.
Jason holds an MBA from the University of Utah, with an emphasis on finance and marketing.