CIWA Leads the Way in Clarifying Surplus Line Broker Licensing
AB 1699 (Duvall), sponsored by California Insurance Wholesalers Association, the Surplus Line Association of California, and Insurance Brokers & Agents of the West, was signed into law by the Governor June 14 after passing both houses of the legislature unanimously.
As detailed below, in addition to improving the fee structure for Surplus Line Broker licenses created by last year’s AB 1639, AB1699 is a large step in clarifying what individuals within an organization need to have a Surplus Line Broker license. Leading the way in working with the Department, Legislature and other broker organizations, CIWA’s efforts on behalf of California Wholesalers and other Surplus Line Brokers have helped bring much-needed improvement in reducing ambiguity over who needs to have a Surplus Line Broker License.
Background
AB 1699 is a clean-up bill to last year’s AB 1639 (Duvall, Chapter 122, Statutes of 2007). The bill was introduced to eliminate unintended and inequitable consequences of changes to the fee structure and requirements for surplus line broker licensees enacted last year.
Prior to the enactment of AB 1639, licensed broker-agents who only intended to sell surplus line insurance on behalf of a licensed surplus line broker organization were not required to hold an individual surplus line license. The only requirement was to complete the Surplus Line and/or Special Lines Surplus Line Endorsement Authorization form with the corresponding fee, and be named on an existing license.
AB 1639, sponsored by the Department of Insurance, was intended to make it easier for California surplus line brokers to obtain non-resident surplus line licenses in those states that require individual licensing of surplus line brokers. That bill required all individuals who transact surplus line insurance to apply for, and be individually licensed as, a surplus line broker. It decreased the surplus line broker license fee from $1,200 every two years, to $700 every two years. It was expected to be revenue neutral because more licensees would be paying the fee. The $50,000 bond requirement was waived for individual applicants who would only be transacting business on behalf of a surplus line broker agency that has already posted such a bond.
As written in AB 1639, the new individual license requirement was interpreted by many insurance professionals as meaning that all property/casualty broker-agents must be licensed as surplus line brokers if they were ever involved in working on a risk or insurance quote that was ultimately placed with a non-admitted insurer by the agency or brokerage. However, the change that AB 1639 was intended to focus on those individuals who are responsible for the proper discharge of the duties placed upon an organizational surplus line broker. The change was to entitle these individuals to individual surplus line licenses so that they can receive reciprocal treatment in other states.
Fee Changes
Although the fee changes last year were revenue neutral to the Department, a thorough analysis of how the new fee schedule would affect individual surplus line brokers and organizations throughout California had not been performed. After passage of AB 1639, it became apparent that organizations with a significant number of transactors endorsed under their licenses would incur substantial fee increases because the fee for the transactor endorsee has increased from $336 to $700 every two years. Further, prior to the enactment of AB 1639, each organizational licensee was allowed to endorse two transactors as part of its license fee, without additional fee.
AB 1699 corrects this problem by changing the license fee for an individual surplus line broker who transacts surplus line insurance only on behalf of a surplus line broker organization from $700 to $500 every two years, and changes the individual surplus line broker license and the organization license fee from $700 to $1,000 every two years.
A bulletin from the Department, covering implementation of the change is forthcoming shortly.
Who Must Be Surplus Line Licensed
This bill also deletes the confusing language that seemed to indicate that all broker-agent need to be licensed as surplus line brokers and cleans up some pre-existing language in the code that was confusing.
The following language has been deleted from 1765(b): “In order to transact surplus line brokerage business, an individual must be licensed as a surplus line broker.”
With respect to organizational surplus line licenses, 1765.2(a) now says: “If issued to a business entity or individual that maintains more than one surplus line office from which it transacts that business with California residents, it shall name the natural person or persons located at each such surplus line office maintained by the licensee who is or are to be responsible for the proper discharge at each office of all duties placed upon the licensee acting as a surplus line broker and each of these natural persons must be licensed as a surplus line broker.”
Education
Lastly, AB 1699 requires all broker-agents that have any involvement in surplus line placements to take 2 hours of continuing education on surplus lines insurance every 5 years. The Surplus Line Association of California has responsibility to develop the curriculum for the training.
Summary
The passage and implementation of AB 1639 brought confusion and expense to the orderly conduct of surplus line business on behalf of California insurance consumers. The industry brought the problems to the attention of the Department. With CIWA in a pivotal role, the industry worked together with the Department to correct the inequitable costs of AB 1639 and to address the ambiguity with respect to who must hold a Surplus Line Broker license. Legislation containing an urgency clause (so it goes into effect immediately) was introduced, passed and signed in less than six months.
Once again, CIWA has successfully championed legislation behalf of the wholesale insurance brokers in California and the retailers and insureds that they serve.
