Confused with definition of independent procurement
Hi, as I review the 2 ways to gain access to surplus line insurance I felt confused by the independent procurement way:
it says " when a U.S. citizen leaved their home state to insure a risk located in their home state and the purchase is either with unauthorized insurer or a broker not licensed by the home state."
I think I am ok if the insured place insurance directly with unauthorized insurer due to Uniform eligibility standard ( if the unauthorized insurer is eligible to sell business in one state, it will automatically be eligible to sell business in other state due to all state following NRRA default standards). But still, I wonder in this case who will pay the premium tax and do all the filings or diligent search since no broker is involved.
However, I got more confused with the second part of the sentence. How could the insured obtain coverages with a broker not licensed by the home state. 1-state compliance says that only the insured home state can require brokers' license and obtain premium tax. If the broker is not licensed by home state of insured, how can it place coverage where the insured property is in the insured's home state.
There must be something I misunderstood. Please feel free to point that out.
Thanks!
Comments
I understand your confusion. The process of independently procuring insurance, especially in the context of surplus lines and non-admitted carriers, can indeed be complex.
In the case of independently procured/direct placement insurance, the insurance is not purchased through a broker licensed in the home state. Instead, the insured party elects to directly engage an unauthorized (non-admitted) carrier or a broker/agent not licensed by the home state. This is why it's often called "direct placement" - the insured party is directly seeking the coverage, often without the involvement of a home state-licensed broker.
To your first question: In situations where insurance is directly procured, the insured often has to shoulder the responsibility for paying any taxes associated with the transaction. As for regulatory compliance, the policyholder themselves may have to ensure they are in compliance with any relevant laws, such as the diligent search requirement in many states that the insured must first seek coverage from admitted carriers before going to the surplus lines market. The mechanics of this can vary from state to state, and in some instances, the insured might need to consult with legal counsel to ensure compliance.
To your second question: It can indeed be counterintuitive, but remember that the insured is procuring this insurance outside of their home state and from a non-admitted carrier. The broker in question is not doing business in the insured's home state, but rather, the insured is doing business in the broker's state (or country, as in the case of a Lloyd's broker). Consequently, the broker does not need to be licensed in the insured's home state. Instead, they need to be licensed (if necessary) in the jurisdiction where the business is taking place.
This is a complicated area of insurance law and can be subject to variations and exceptions depending on the specifics of the transaction and the jurisdictions involved. It's always advisable for parties engaged in such transactions to consult with legal and insurance professionals to ensure they are in full compliance with all applicable regulations and laws.
Hi Graham,
Thanks for the explanation. So essentially you are saying that Broker's license decide where they are able to do business in (the place the broker is physically located). Does that mean that non-admitted insurer's eligibility decide where they could provide coverages?(in this case, the insurer is providing coverage for properties located in the insured's home state. And due to uniform eligibility standard, the insurer indeed is eligible to provide the coverage even if the insurer is not physically located in the insured's home state)
Thanks
In general, yes, you are correct. A broker's license determines where they are allowed to operate and conduct business, typically in the jurisdiction in which they are physically located and where they've obtained their license.
Non-admitted insurers, on the other hand, are usually eligible to provide coverage in different jurisdictions, subject to certain rules and conditions. The Uniform Eligibility Standard, which you've mentioned, is a part of the Non-Admitted and Reinsurance Reform Act (NRRA) in the United States. According to this, if a non-admitted insurer is eligible in its home state, it is automatically eligible in all other states.
However, it's worth noting that even though the insurer is deemed eligible due to this standard, it doesn't mean that they're regulated by the jurisdiction where the risk is located. Also, it's important to keep in mind that non-admitted insurers don't have the same consumer protections as admitted carriers because they're not as heavily regulated.
So, while non-admitted insurers can provide coverage in states where they aren't physically located or licensed, the transactions must adhere to certain criteria, including those outlined in your original text, such as the transaction taking place primarily outside of the state where the risk is located.
To put it simply, a broker's license dictates where they can conduct business, and a non-admitted insurer's eligibility, according to NRRA, allows them to provide coverages in states beyond where they are physically located or licensed. But the exact nature of how business is conducted in these scenarios can vary and is subject to certain conditions and limitations. It's always a good idea check with the appropriate experts (not me on this topic!) to ensure compliance with all regulations and laws in these complex scenarios.
Ok. Thanks!
You're welcome!