History of Surplus Line Coverage
Insurance in the United States began in 1752. In the early years, the industry was essentially unregulated and it was "buyer beware". There were no government regulation or standards and policyholders often found that when it came time to collect a claim, the money wasn't there. Individual states passed legislation to address the issues but there was no real regulation until the 1850's. At that time, states began to establish insurance departments and in 1871 the insurance regulators of various states met in the first "commissioner" meeting to discuss issues of state regulation which they had in common. In subsequent meetings (now called National Association of Insurance Commissioners - NAIC - meetings), standards or model laws were established that all states were encouraged to adopt. Eventually all states developed a requirement that any insurance company desiring to do business in a state must become licensed or "admitted" in that state. Requirements for "admission" varied widely by state but all set minimum financial strength, reporting and taxation requirements. Generally, the states require each admitted insurer to file a schedule of rates it will use and require adherence to those "filed" rates in all policies issued.
Unfortunately, the admitted insurers have never been able to address all of the insurance needs of industry. In many cases, the unusual exposure presented is beyond the scope of the admitted market underwriters' experience, in others the magnitude of the potential loss exceeds the capacity of all of the admitted insurers combined. As industry has grown, so has the need for greater capacity and the ability of insurers to cover the new risks which are evolving. Early on, Lloyd's of London stepped forward to fill the gap created by the admitted insurers' inability to address some insurance requirements. The entrepreneurial underwriters at Lloyd's were alert to the great potential of this country and in 1890 Cuthbert Heath of Lloyd's wrote the first American risk ever, in Lloyd's "Non Marine" market. Recognizing that non- admitted insurers such as Lloyd's were necessary when admitted insurers were unable to fill industry's insurance needs, the regulators established special rules to permit the writing of insurance with non-admitted carriers under certain circumstances. As the coverage to be written was excess or "surplus" of the amount or type that could be written in the admitted market, the non-admitted market came to be known as the "Excess and Surplus Lines" market. All states have developed statutes controlling the placement of insurance in the non-admitted market. While requirements vary by state, they all require some minimum financial strength (established by statute) and confirmation that the coverage was not available in the admitted market. Most states require that the non-admitted transaction be handled by a specially qualified "surplus lines" agent who is personally responsible for making sure that the insurer is qualified, that the coverage is not available in the admitted market and that the appropriate taxes are collected.
The Surplus Line Association of Oregon
The Surplus Line Association of Oregon was originally formed in 1939 at the direction of the Insurance Commissioner of Oregon as an unincorporated Association of Surplus Line Brokers. Its purpose was to assist the Insurance Division in regulating and collecting taxes on the surplus lines business written in Oregon.
In August of 1980, the Association was incorporated as a non-profit corporation for the following purposes:
- To cooperate with recognized organizations of admitted insurance carriers and insurance agents for the proper use of the surplus lines market by members of the corporation
- To discourage and prevent violations of the law regarding surplus lines insurance by members of the Association and insofar as possible, by non-members
- To encourage fair dealing between members and with the public and admitted insurance carriers
- To adopt and enforce rules, insofar as permitted by law, for the accomplishment of the objectives of the corporation
Under the Oregon Surplus Lines Law, the Association also shall:
- Be the advisory organization of the surplus lines licensees.
- Provide means for the examination of all surplus lines coverages written by its members to determine whether such coverages comply with the law.
- Communicate with organizations of admitted insurers with respect to the proper use of the surplus lines market.
- Supervise the calculation, reporting and remittance of the state premium tax due on surplus lines placements. Supported by filing fees paid by policyholders on the approximately 52,000 (2019) new or renewal surplus lines policies examined each year, the Association today continues its role of examining surplus lines placements and reporting taxes to the state. In addition to its examining duties, the Association supports insurance education and research in the surplus lines industry. An Executive Director and staff are employed to discharge these responsibilities subject to the oversight of a volunteer board of five directors elected from the membership.