Michigan Surplus Lines - Insurance Continuing …

1 Michigan Surplus Lines 1. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. 2015 by American education Systems, LC. All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. American education Systems, LC. 14 Belleview, Mt. Clemens, MI 48043. Toll free: 1-800-775-6339. 2. About This Program This is a Continuing education program designed to provide an overview of essential information pertaining to Surplus Lines Insurance in Michigan .

2 American education Systems, LC is not engaged in rendering legal or other professional advice, and the reader should consult legal counsel as appropriate. The content of this publication may be affected by changes in law or industry practice; as a result, the information contained within may become outdated. This material should in no way be used as an original source of authority on legal matters. About The Exam Paper courses include a Test Packet, which contain instructions, a disinterested third-party affidavit ( Monitor Form), an Agent/Producer Information Page, a scoring sheet ( Answer Sheet), and the exam/test. Online courses integrate the contents of the Test Packet and deliver them to the student directly. IMPORTANT NOTE: To earn Continuing education (CE) credit with a paper version of this course, you are required to follow one of two options: Option 1.

3 Complete all the enclosed paperwork in the Test Packet and submit the contents to American education Systems, LC at 14 Belleview, Mt. Clemens, MI 48043. We will grade the completed exam; upon passing ( score 70% or better), we will update our records and submit the pertinent information to the State of Michigan 's authorized representative so the earned credits can be posted to your official Option 2. At no additional cost to you, we also provide you with the option of completing your exam online. This allows for a more rapid conveyance of the completed paperwork to our office and eliminates the uncertainties associated with physical mail delivery. Instructions for completing your test online are found at the conclusion of the text. About Contacting Our Office If you have any questions about your course, the process of meeting your CE requirements, or the contents of your course package, feel free to contact Our office hours are Monday-Friday, 10 am to 4 pm, and we maintain a toll-free line at 1-800-775-6339.

4 If you need help after hours, you may leave us a message on the office voice mail, and we will contact you at our first availability. You may also want to visit our homepage at and search the FAQs. 14 Belleview, Mt. Clemens, MI 48043. Fax 1. If you do not pass your exam on your first attempt, we will forward you a new exam; there is no maximum number of attempts, nor are there additional fees associated with exam retakes. 2. Please be advised we can only discuss course and exam process; we are not permitted to provide comment or direction regarding course content. 3. Contents Introduction and Overview of Excess and Surplus Lines 5. Development of the Excess & Surplus Lines 6. The Nonadmitted and Reinsurance Reform Act (NRRA). 7. The Michigan Surplus line Law 10. Appendices 29. 4. Introduction and Overview of Surplus Lines This course is designed as a Continuing education course for the Michigan producer.

5 The reader should know that Michigan currently does not have additional mandatory education requirement for the Surplus Lines qualification; credits earned from successful completion of this program will be allotted to the producer's core ( General ) Continuing education requirements. Surplus Lines is a class of Insurance designed to meet Insurance needs of insureds that fall outside the underwriting guidelines of the standard market and are often characterized as being large, unusual and difficult to place. Dramatic examples of Surplus Lines Insurance include exotic coverages such as a celebrity's leg's or some priceless artwork. Most Surplus Lines business, however, covers more familiar risks such as special events, vacant buildings and environmental impairment. Also referred to as Excess & Surplus Lines , it is an Insurance market that consists of property and casualty insurers that act as a fall-back to the standard market by providing coverage for risks that would otherwise go unprotected, either due to the characteristics of the risk or the amount of premium required to establish coverage.

6 Some of the benefits realized by the Surplus Lines market are the following: Accepts unfamiliar business risks Accepts coverage when the standard market declines the risk Develops and provides a stable market with new products and services to secure special/individual and program risk exposures Develops premium for risks without much historical data Provides the consumer with a competitive choice as compared to involuntary, inflexible residual market Provides additional capacity Affords flexibility to tailor coverages to meet the needs of policyholders Quickly responds to needs of market 5. Development of the Surplus Lines Market The Surplus Lines market was created as a result of Insurance industry regulation. In the 1880's rate wars were rampant among young property insurers often resulting in inadequate rates and insurer insolvency.

7 This led to the development of rating bureaus which could collect loss experience and promulgate uniform rates for all insurers. The result was rate and form standardization for licensed carriers. While rating bureaus were technically anticompetitive, the 1869 case of Paul vs. Virginia determined that Insurance was not interstate commerce and, therefore, not subject to federal law. The legitimacy of these rating bureaus was reconfirmed in 1910 when the Merritt Committee, formed by the New York State Legislature, confirmed that due to the nature of the Insurance industry, the rating bureaus were in the best interest of the public. The resulting forced uniformity stabilized the Insurance industry but stifled innovation, flexibility in pricing and product design in the admitted market. Thus, the excess and Surplus line carriers continued to operate.

8 In 1895, the National Association of Insurance Commissioners (NAIC) raised concerned with unregulated carriers, recommending each state pass a law prohibiting domestic companies from doing business in states where they were not licensed. This meant that due to the rate filing requirements, many insurers were incapable of charging adequate rates for certain insureds and certain classes of business. These higher risk insureds and classes were declined and thus, unable to purchase Insurance . A need emerged for non-regulated insurers who could charge adequate premiums for those unusual risks and exposures which needed the financial protection provided by Insurance . As Lloyd's of London was not a domestic insurer, the new regulation did not apply to that market. In fact, the regulation, which would require rules and rates to be filed, became a disincentive for Lloyd's to apply for an Insurance license in the United States.

9 As a result, Lloyd's became a major unlicensed insurer despite the position of most Insurance regulatory bodies of the time. The New York legislature had already recognized the need for the specialty market and in 1890 enacted the first Surplus Lines law legitimizing domestic as well as alien Surplus Lines insurers. These were similar to the laws in effect today in that the regulatory responsibility is placed on the broker rather than the Insurance company. Unfortunately other states were slow to follow New York's lead. Most states preferred to believe that the licensed carriers could handle all Insurance needs. One legislator even felt that if an Insurance buyer could not find coverage in the standard market, the risk probably did not deserve Insurance .. In 1944 the US Supreme Court overturned Paul vs. Virginia in the case of US vs.

10 South-Eastern Underwriters Association. The court concluded that Insurance constituted interstate commerce, thus making the Insurance industry subject to federal antitrust laws and removing it from state jurisdiction. State legislators and the Insurance industry quickly acted together to draft the McCarran-Ferguson Act which Congress passed in 1945. The Act returned the authority to regulate Insurance to the states, and provided the Insurance industry broad exemptions from federal antitrust laws. 6. During the ensuing years, the Surplus Lines market was often considered to be the black sheep of the Insurance industry. Most of the trade press misunderstood the work and efforts of legitimate carriers doing their part to supplement the admitted market. In 1959, Florida was the first state to create a Surplus Lines division within its Insurance department.