Surplus lines insurance is intended to provide coverage that cannot be easily procured in the conventional insurance marketplace. Traditional insurance companies must file their premium rates and policy forms with state regulatory agencies. The rates and forms must be approved prior to any insurance policies being offered for sale to consumers within the state. Generally speaking, surplus lines insurance is that which is not readily available through traditional means. These are generally unusual risks that require specialized insurance policies or risks that have very poor loss experience and are unattractive to conventional insurers. Surplus insurers have written hurricane coverage in Florida and compete for these risks, although generally there has been a decline in such policies since the active hurricane season of 2005. In 2005, the Florida Surplus Lines Service Office (“FSLSO”), processed about 112,000 policies written in the homeowners market compared with about 53,000 policies in 2009.
In Florida, the FSLSO reported that when comparing the first six months of 2010 to the same time period in 2009, Florida actually saw a 2.5 percent increase in surplus lines insurance premiums. Florida Statute §626.918 (within the Surplus Lines Statute) imposes certain eligibility requirements for an insurer in Florida.
These requirements include the following. The insurer must be an authorized insurer in the state or country of its domicile as to the kind or kinds of insurance proposed to be placed and must have been such an insurer for three years or more. However, the three year requirement may be waived if the insurer provides a product or service not readily available to the Florida consumers or has operated successfully for a period of at least one year and has capital and surplus of $25 million or more. The insurer must furnish the FSLSO office with a copy of its current annual financial statement. The insurer must have and maintain surplus as to policyholders of not less than $15 million, and a foreign insurer must also have and maintain in the United States a trust fund for the protection of all its policyholders in the United States, in an amount not less than $5.4 million.
Additionally, the insurer must be of good reputation of service to its policyholders and payment of losses and claims. The insurer must be eligible to transact insurance in this state, under Florida Statute § 624.404(3).
After the Florida Legislature excepted surplus insurers from Chapter 627 of the Florida Insurance Statutes, there were some protections afforded to policyholders within the Surplus Lines Statute similar those provided in Chapter 627. Yet, there are still some provisions in Chapter 627 with no counter-parts within the Florida Surplus Lines Statute. In the upcoming weeks, we will address some of these similarities and differences between Chapter 627 and the Surplus Lines Statute.