The State of the Surplus Lines Industry Today
Surplus lines is a constantly evolving and changing industry. From where it began up to today, it has taken its place as an essential part of the broader insurance industry. Because it has become such an integral part of the insurance world, surplus lines has seen a lot of growth in recent years. However, with growth comes a variety of difficulties.
Daniel Steadman, one of InsCipher’s founding partners, delves into these difficulties and examines the state of the surplus lines industry as it exists in 2017.
For much of surplus lines’ beginning, it was viewed as the ugly duckling of the insurance industry. And while today it might not necessarily be considered a swan, it has taken its place as a necessary component.
In its August 2015 report on surplus lines, A.M. Best described the industry as:
. . .a safety valve for the insurance industry, especially in hard markets. As emerging issues and exposures drive more demand for creative, comprehensive insurance solutions, A.M. Best believes the surplus lines market will continue to gain in prominence.
As alluded to in the above statement, the surplus lines industry is one that still has room for growth. And with that growth comes growing pains.
Governing the Industry
After former president Barack Obama signed the NRRA (Nonadmitted and Reinsurance Reform Act into law in 2010, many states initially struggled to implement its conditions regarding surplus lines.
Almost immediately, two alternates were proposed: the Surplus Lines Multistate Compliance Compact (SLIMPACT) and the Non-admitted Insurance Multi-State Association (NIMA).
On April 28, 2016, NIMA was officially declared dead by the few states left in the association. While technically no longer running, the states have given themselves to the end of 2017 to implement their close-out plan.
SLIMPACT, on the other hand, is still, for lack of a better word, “alive.” Technically, it has never launched, but it seems the remaining compact states have yet to officially give up hope.
With these two models, we see states demonstrating their uncertainty regarding the best way to move forward managing and regulating their surplus lines market. However, while it has taken many years for the states to find their footing, today we see it starting to gain traction.
The decline of NIMA and SLIMPACT may have been caused, at least in part, by the implementation of the NRRA. In the seven years since it became federal law, all states, with two exceptions, have adopted its language into their own laws, nearly fulfilling the law’s original purpose of bringing regulatory consistency to surplus lines taxation.
Figuring Out How to File
However, some confusion and many inconsistencies still exist between the states regarding the actual act of filing surplus lines taxes and the actual reports.
Each state has its own rules, form requirements, and filing frequency. These differences make it confusing for agencies who write surplus lines in more than one state.
Some states have a stamping office that works directly with their Department of Insurance to manage surplus lines. Others work with a professional surplus lines association. And some have nothing at all.
Some states still require paper filings that need to be mailed in. Others ask for emails and attachments. Many are starting to transition to digital platforms.
Digital filing is one area where we finally start to see a consistent trend emerge. With the exception of a few states (AR, HI, AK, GA, ME, NE, and VT), nearly all have switched over to some kind of digital filing platform for surplus lines filings.
Another reason there is still so much confusion surrounding surplus lines, on top of the things already discussed, is that many states haven’t fully maintained their websites with the most current versions of their forms, so it often requires some digging before you’re able to file.
Throughout time, the surplus lines industry has moved towards greater regulation. In part, this was done to counteract the early naysayers of surplus lines and help establish it as a legitimate insurance alternative for high-risk businesses.
Regulation of surplus lines is still an integral part of the industry today, and it’s a trend we don’t see disappearing, especially as it continues to grow in prominence.
One of the important ways we see regulation in the industry is through professional surplus lines associations. For many states, membership in an association is required for a surplus lines agent to keep his or her license in good standing.
Because many associations are concerned with utilizing best practices and establishing compliance standards, this situation is beneficial to everyone involved, including the agent, the state’s Department of Insurance, and the surplus lines industry as a whole.
As an essential component of the broader insurance industry, the surplus lines market today has experienced incredible growth, a trend that is only predicted to continue. Surplus lines has grown beyond its infancy and as it continues through its young adulthood, it has found, and will continue to find, greater stability and consistency.
By adopting digital technologies, surplus lines has begun to operate in a much more streamlined way, though there are still kinks to work out in its administration.
InsCipher is a surplus lines technology company creating innovative products to automate surplus lines tax filing and reporting, significantly reducing costs while improving compliance and efficiency. Want to learn more? Request a free demo today.
Surplus Lines Tax Filing, Simplified by InsCipher.