5 Pro Tips for Surplus Lines Compliance

When people first start doing business in the non-admitted market, the to-do list of compliance tasks can feel intimidating. There are lots of new requirements and procedures to master, and the stakes are high, for both your bottom line and your regulatory reputation! That’s why we’re sharing these five pro tips for surplus lines compliance—and some real-world examples.

Be Proactive

It’s much harder (and more expensive) to catch up on surplus lines filings and tax reports than to keep up with them. Give yourself and your surplus lines licensees some lead time before a deadline. Then, you can double-check that all policies and supporting documents are in order.

If you do fall behind, speed is of the essence. Consider using a compliance service. They can help you get caught up and resolve any regulatory issues arising from late or missed filings.

Penalties for late filings and reports can add up quickly. West Virginia, for example, assesses a fine of $25 per day. In Illinois, penalties can reach $2000 per occurrence. Neither of these states waives penalties.

Keep a Calendar

There are so many deadlines for surplus lines compliance: license renewals, policy information filings, premium tax reports, etc. A good calendar is a compliance coordinator’s best friend! The tool you use isn’t that important. Anything from a paper desk calendar to a sophisticated project management tool can do the trick.

What’s essential is putting in the time to keep the calendar up to date. It’s also important to remember that some jurisdictions have “quirky” rules that can alter compliance due dates. Understanding these rules can prevent costly errors.

In Texas, surplus lines premium taxes typically are due by March 1st, for the previous year. However, when accrued taxes due equal or exceed $70,000, the state requires a prepayment. It is due on the 15th day of the month following the month in which accrued taxes total $70,000.

Create a Culture of Compliance

Having a compliance coordinator can be invaluable for an E&S brokerage of any size. Nothing makes a coordinator’s job more difficult though than having to chase down agents and brokers for information.

Creating a culture of compliance requires making these tasks part of the daily routine—not a mad scramble as a deadline approaches. Leadership must hold every team member accountable for their part in the process. Licensees need to understand that they are responsible for meeting filing and reporting deadlines. After all, penalties for non-compliance attach to their licenses and harm their regulatory reputations.

Many people don’t understand that compliance requirements begin as soon as a surplus lines license issues—even if they haven’t bound a policy yet. More than half of U.S. jurisdictions require licensees to submit zero reports attesting that they have not written any business during a given period.

Build Relationships with Regulators

The diligent oversight required for such a dynamic market can lead licensees to see regulators as the “enemy.” It isn’t an adversarial relationship, though. Regulators want you to succeed and offer a wide range of resources to help.

Videos, webinars, and blogs highlight best practices and warn against common pitfalls. Most regulators also share bulletins or free e-newsletters to keep surplus lines professionals aware of current regulations and procedures.

Depending on the state there may be more than one regulator overseeing the non-admitted market. Texas, for example, has a surplus lines association and a stamping office in addition to the state insurance department. In New York and California, the surplus lines associations also serve as their states’ stamping offices. And Florida has a service office, but not a surplus lines association.

Don’t Get Complacent

The non-admitted market is constantly evolving. Coverages move on and off export lists. Carriers enter and leave states. Regulations and rates change. Saying “But we’ve always done it this way” or “That’s how we do it in our home state” won’t appease regulators. Have the tools and resources to verify that you’re following the right rules for each new policy, endorsement, or renewal.

Premium tax rates and stamping fees change over time. Many states require filers to use the rates and fees in force at the time the surplus lines policy was first bound when submitting endorsements or late filings/reports.

ReSource Pro offers end-to-end solutions for surplus lines compliance. Learn more by visiting our Compliance page.