Be Careful What You Wish For


With the passage of Dodd-Frank in 2010, the surplus lines industry was handed a surprise gift. But how it’s implemented will determine whether that event was a win.


“They’re not looking to enhance our effi ciency as much as they want to make sure that we pay what we’ve been paying.”


Steven DeCarlo, AmWINS


A late addition to the Dodd-Frank fi nancial reform package, enacted in the summer of 2010, contained what should ultimately prove to be sweeping changes for the surplus lines industry. The bill assigns authority for taxation, regulatory and licensing authority for nonadmitted business to the home state of the insurer and instructs insurance regulators to determine how to make this system work.


However, the rules and processes for determining how those premiums and taxes would be allocated are unclear; confl icting interpretations quickly emerged among states. The process may not be clarifi ed for months.


Surplus lines professionals believe the opportunity for improvement remains, but its path is uncertain. “There’s a lot of room for unintended consequences. Depending on how they wind up unraveling, it could be great or it could be better off the way it was before,” Neal Abernathy said.


What the reform will affect is the wholesale broker community, which has often been the dominion of regional specialists. If regulations indeed become streamlined, that could undermine an advantage held by those that have based their success on their command of local regulations and processes rather than coverage prowess, panelists said.


“If that’s the only value I have, the fact that I can fi le nonadmitted in 50 states, I really have no value,” Steven DeCarlo said. “I’ve got to improve upon that.”


Copyright © 2010 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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