The Texas Commissioner of Insurance has announced the repeal and replacement of provisions Chapter 15 Texas Administrative Code related to the regulation of surplus lines insurance. The proposed new rules were originally published in June, 2018 and have been adopted with modification. According to the December 10, 2018 adopting release, the revised Chapter 15 regulations are necessary to implement Texas legislation concerning surplus lines insurance and to update and reorganize the Department’s rules. Some of the replacement sections restate the repealed prior sections with only minimal modification.
Highlights from the Department’s release of the new rules include:
- Section 15.3 clarifies that a surplus lines policy is subject to Texas regulation if the insured’s home state is Texas. Under the Texas Insurance Code, an insured’s home state is the insured’s principal place of business or principal residence. New Section 15.3(1) clarifies that the principal place of business is the location from which the officers of an insured that is not an individual (person) direct, control, and coordinate the insured’s activities, or generally, the insured’s headquarters.
- Section 15.5 sets out the minimum content required for surplus lines insurance contracts, policy, certificate, cover note, or other confirmation of insurance purchased and delivered.
- Section 15.9(a) requires the Texas Surplus Lines Stamping Office evaluate all surplus lines documents for eligibility and compliance and permits the stamping office to request additional information needed to complete their evaluation.
- Section 15.101(a) lists the type of surplus lines insurance activities that require a surplus lines agent license.
- Section 15.102(f) clarifies that a surplus lines agent may exercise underwriting authority only if there is a current written agreement from each eligible surplus insurer granting the authority, lists the elements that must be contained in the underlying agreement, and requires the agreement be available for review by the Department.
- Section 15.102(g) sets out requirements for a surplus lines agent to exercise claims authority on behalf of an eligible surplus lines insurer, requires that a Texas-licensed adjuster must perform all claims adjustments, and the agreement must be available for review by the Department.
- Under Section 15.104(a) surplus lines agents are still required to make a reasonable inquiry into the financial condition and operating history of the insurer before placing insurance.
- Section 15.104(b) clarifies that a surplus lines agent has a continuous duty to stay informed of the insurer’s solvency, soundness of its financial strength, and ability to process claims and pay losses promptly and efficiently.
- Section 15.104(c) clarifies that a surplus lines agent must immediately inform TDI and the stamping office if there is doubt to the capacity, competence, stability, claims practices, or business practices of an insurer.
- Section 15.104(d) clarifies that a surplus lines agent must immediately inform TDI and the stamping office if the agent has reasonable grounds to believe that an insurer that is not admitted, not on the National Association of Insurance Commissioners’ alien insurer list, or is not an eligible surplus lines insurer and is doing the business of insurance in Texas.
- In relation to Exempt Commercial Purchasers eligible for surplus lines insurance, Sections111(1) and (2) requires the surplus lines agent retain a copy of the documentation of the applicable statutory exemption and a signed statement from the insured identifying which provisions of Texas Insurance Code offering the exemption are applicable to the insured.
- Similarly, for Industrial Insureds eligible for surplus lines insurance, Section 15.112(2) requires the surplus lines agent retain a signed statement from the insured and other documentation supporting the exemption.
- Section 15.115 addresses Surplus Lines Policies for Purchasing Groups. Section 15.115(a)(1) clarifies that a purchasing group must have as one of its purposes the purchase of liability insurance on a group basis. Section 15.115(a)(2) clarifies that a purchasing group must be a group that purchases liability insurance only for its group members and only to cover their similar or related liability exposure. Section 15.115(a)(3) clarifies that a purchasing group must be made of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by any related, similar, or common business, trade, product, service, premise, or operation.
- Subchapter D of the regulations relate directly to information required of surplus lines insurers. Section 15.301(a) clarifies that surplus lines insurers not designated as domestic surplus lines insurers must submit certain information to the Department and the Texas Surplus Lines Stamping Office. Section 15.301(a)(1) clarifies that surplus lines insurers domiciled in other states must only provide evidence of authorization from their domiciliary jurisdiction to write the same kind of business it proposes to write in Texas and that it meets the specified capital and surplus requirements. Section 15.301(b) requires domestic surplus lines insurers to provide a copy of the certificate issued to them by TDI to the stamping office and documentation supporting the required capital and surplus.