Essay: Surplus lines midterm paper

Surplus Lines Midterm Paper

Traditional insurance markets consisting of standard companies are not always available for every risk. Some risks can be characterized as distressed, unique, and/or high capacity which makes them unacceptable in the standard market. The surplus lines market is the insurance marketplace that is established for insuring hard to place risks for individuals or organizations that the standard market rejects. Some of the rules that apply to surplus lines placements and surplus lines companies differ from those that govern coverage obtained from licensed insurance companies. For example, surplus lines underwriters have freedom of rate and form while standard market underwriters must file rate changes with the state. This freedom in the surplus market allows underwriters to assess the unique, distressed or high-capacity risks and create a rate that is seen as fair and adequate to the insurance company and the consumer. Freedom of form means companies operating in the surplus lines industry can change policy forms as risks evolve and appetites vary. They may change these policy forms without the permission of the state’s insurance department. Surplus lines companies may be located in other states or countries. For example, an agent may be unable to obtain the coverage a client requests among the companies licensed in Louisiana but is able to provide the coverage from an eligible surplus lines company. Since the surplus lines insurer is unlicensed, the policies are regulated by state laws that govern the surplus lines intermediary. These state laws require surplus lines coverage to be obtained by specially licensed surplus lines agents or brokers who are authorized to transact business with unauthorized insurers that meet necessary criteria.

By reading this paper, one should be able to comprehend the non-standard market and its importance in the insurance industry. This paper will discuss examples of several different risks assumed by the non-standard market and the variations between standard and non-standard regulations in the following five states: Delaware, Illinois, Montana, North Carolina, and Louisiana. The paper will also discuss the ongoing debate between state and federal regulation. The paper will conclude with a marketing plan for wedding insurance coverage offered in the surplus lines market.

Surplus Line Risk Examples

Wedding Comprehensive Liability is a coverage plan provided by Sinclair Insurance Company. This is a unique risk due to the complexities involved with planning an exclusive life-changing event for a couple. The risk is also considered high capacity in the cases involving a high expense or “platinum” wedding. The comprehensive plan provides public liability coverage and other features to protect against the loss or damage to ceremonial attire, wedding rings, wedding presents, flower arrangements, and the wedding cake. The policy also covers the cancellation and rearrangement of the wedding or the reception and the bankruptcy or liquidation of pre-booked suppliers. Sinclair Insurance Company allows individuals to customize policies by choosing a level of protection ranging from $100,000 to $10,000,000 and deductible ranging from $1,000 to $10,000 (http://www.sinclairpremium.com/wedding-insurance.asp).

The Scottsdale Insurance Company provides commercial umbrella liability and excess liability coverage for restaurants and bars. Restaurants are a high-capacity risk because of the amount of money invested in perishable supplies such as food and beverages. Restaurant owners must also concern themselves with the health of employees and the business’ patrons. Bars are a high-capacity risk due to the potential liability caused by the multitudes of people, many who are under the influence of alcohol, who visit on a regular basis. Even though managers of these establishments do their very best to insure safe conditions, patrons can behave haphazardly and cause damage to themselves and the premises (https://portal.web.scottsdaleins.com/public/insurance_products/excess_umbrella.jsp).

Railroad contractors, railroad service companies and suppliers, and contractors looking for liability coverage can buy policies from Arch Insurance Group. Arch Insurance offers coverage for the various loss exposures caused by railroad related liabilities since the railroad industry includes high-capacity risks. This risk is high capacity because there are many potential loss exposures related to the nature of travel on railroad lines. Commuter, tourist, and supplier railroad lines all involve people and goods that need to be insured under a large policy. The different railroad policies offered by Arch Insurance include $25,000,000 coverage per occurrence with a $50,000,000 policy aggregate.
(http://www.archinsurance.com/products.aspx?ContentID=85).

The travel and accident division of Arch Insurance Group offers Leisure Travel Insurance coverage. This special division offers travel and accident related insurance products to men and women who would like to protect their often non-refundable vacation expenses. United States residents who are taking trips lasting less than one year qualify for this unique coverage. This is a unique risk due to the various vacation choices available to individuals. Arch Insurance offers two main products to protect a client’s vacation expenses and cover them if unanticipated emergencies occur. If sickness, death, injury, terrorism, or bad weather occurs, pre-departure coverage will compensate the insured the full amount of the planned trip. Post-departure coverage will pay for emergency medical expenses and evacuation expenses. This coverage also protects personal items such as luggage and reimburses the insured for lodging and meals if he or she is delayed. Arch Company Group also offers non-insureds a 24-hour hotline to help travelers who experience emergencies during their vacation or would like concierge services. (http://www.archinsurance.com/products.aspx?ContentID=204).

American Modern Insurance Group provides specialty homeowners coverage that protects rental/seasonal properties and highly expensive and/or older homes that cannot receive adequate coverage from the standard market. This high-capacity risk can also be distressed. The risk is high capacity because property is usually insured for an amount that far surpasses its actual value. With this program, there is no age restriction and property must show proper maintenance; however, most insureds have dealt with many losses in recent years due to the age or location of the property and must obtain this coverage to protect the distressed risk. This policy offers liability, property, other structures, loss of use, reasonable repairs, additional living expense, and vandalism coverage. Additional coverage for earthquakes, collapse, freezing, water, and power interruption can also be purchased for this risk type (http://www.amig.com/specialty_homeowner.html).

State Regulation

State laws place financial requirements on insurance companies to limit the risk that insolvency will occur. Insurance companies doing business in the United States are required to maintain a minimum amount of capital and surplus in the respective domiciliary state; however, all states have different requirements for each line of business. This should not be confused with risk-based capital requirements. State law also imposes a risk-based capital requirement. Risk-based capital addresses the minimum amount of capital that an insurance company must have to support its overall operations. This amount is based on the risk associated with a company’s promise to pay future claims in accordance with an insurance policy and on the amount of financial risk to which a company is exposed through its business debts and investments.

Delaware

Capital and surplus requirements usually depend upon the line of business and type of risk. Delaware has different capital and surplus requirements for different lines of insurance. Delaware’s requirements are listed in the following table for domestic stock, mutual, and reciprocal insurers.

Insurance Line	STOCK Capital		MUTUAL Capital			RECIPROCAL Capital
	Stock	Free Surplus	Stock	Basic Surplus	Free Surplus	Stock	Basic Surplus	Free Surplus
Life	$300,000	$150,000	300,000	300,000	$150,000	300,000
Health	300,000	150,000	300,000	300,000	150,000	300,000	300,000	150,000
Life & Health	350,000	200,000	350,000	350,000	200,000	350,000
Property	300,000	150,000	300,000	300,000	150,000	300,000	300,000	150,000
Casualty	400,000	200,000	400,000	400,000	200,000	400,000	400,000	200,000
Marine & Transportation	350,000	175,000	350,000	350,000	175,000	350,000	350,000	175,000
Surety	300,000	150,000	300,000	300,000	150,000	300,000	300,000	150,000
Multiple Line	500,000	250,000	500,000	500,000	250,000	500,000	500,000	250,000
Title	250,000	125,000

By order of the state’s commissioner, insurance companies cannot issue policies until these requirements have been met. A foreign insurer cannot conduct business in the state unless the company pays a $100,000 deposit. Delaware law also requires a tax of 2% on insurance premium written on admitted and non-admitted risks within the state. The tax on surplus lines premiums is paid by the insured, rather than the insurer, as in the admitted market. The tax on surplus line insurance is calculated by using the premiums received for insurance policies and does not include money collected to cover other federal and state taxes or examination fees. If a surplus line policy covers risks or exposures only partially in Delaware, the tax is calculated by using the proportion of the policy’s premium that is located in the state. Surplus line brokers are responsible for submitting the premium tax to the Department of Insurance in the correct and appropriate times.

Delaware requires a minimum of three declinations from representatives of admitted insurers. The declinations serve as evidence that this “diligent effort” was made prior to placing the coverage with an unauthorized insurer. The declinations must come from insurers that are authorized to transact and actually write the kind and class of insurance in Delaware. The Statement of Diligent Effort must be completed and signed by the licensed producing agent or surplus lines broker who represents the insured. The statement must then be filed within thirty days after the effective date of the policy. This form must be kept with the surplus line broker’s records related to the policy and easily accessible by the state insurance commissioner for at least five years after the policy’s inception.Dorothy Speight can be reached at (302) 674-7344 or dorothy.speight@state.de.us.

http://delcode.delaware.gov/title18/index.shtml#TopOfPage

http://delcode.delaware.gov/title18/c005/index.shtml#511

http://www.delawareinsurance.gov/departments/documents/PremiumTax/2007/PDF/SLBManual06.pdf

Illinois

Illinois Code stipulates certain capital, surplus, and deposit requirements for its insurance lines. The following table represents Illinois’ requirements for stock and mutual insurers in the standard market that provide life and property and casualty policies.

Type	Stock Life	Mutual Life	Stock P&C	Mutual P&C
Capital	$1,000,000	N/A	1,000,000	N/A
Surplus	1,000,000	$2,000,000	1,000,000	$2,000,000
Deposit	1,500,000	1,500,000	1,500,000	1,500,000

The Illinois law for the non-standard market allows a licensed surplus lines producer to acquire insurance from a surplus line insurer after the insurance producer is unable to obtain coverage in the standard market.However, the surplus line producer may only procure the insurance from surplus line insurer that has a surplus of at least $15,000,000. Regulation 2801 of the Illinois Code requires insurance producers to receive at least three declinations from insurers who are engaged in writing the specific type of coverage desired. A formal declination form does not have to be completed or submitted to the state. It is the surplus lines producer’s responsibility to keep pertinent insurance policy papers and a record of people contacted at each company who declined the risks.

Illinois’ non-standard market tax is 3.5% of the net written premium. This tax is collected on August 1st for premiums written during the first part of the year and on February 1st for premiums written July through December. The standard market tax is equal to 0.5% of the net written premium. Illinois law also requires tax statements to be filed even when no tax is due.

Etta Mae Credi can be reached by phone at (217) 785-8155 or at etta.credi@illinois.gov.

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?
ActID=1249&ChapAct=215%26nbsp%3BILCS%6nbsp%3B5%2F&ChapterID=22&ChapterName=INSURANCE&ActName=Illinois+Insurance+Code

http://www.slai.org/download/regs_toc.html

http://www.naic.org/documents/industry_ucaa_chart_min_capital_surplus.pdf

Montana

In Montana, the initial paid-in capital and initial surplus requirements for domestic mutual, stock, and reciprocal insurers are all the same. The following table lists the amounts required for each insurance line.

Insurance Line	Paid-in Capital	Initial Surplus
Life	$600,000	$600,000
Disability	500,000	500,000
Life and Disability	750,000	750,000
Credit and Disability	150,000	150,000
Property	500,000	500,000
Marine	500,000	500,000
Surety	500,000	500,000
Title	500,000	500,000
Multiple Lines	1,000,000	1,000,000
All Casualty Lines, w/o Worker’s Comp	500,000	500,000
All Casualty Lines, w/ Worker’s Comp	750,000	750,000

According to Montana’s Code, all stock insurers and mutual and foreign reciprocal insurers who have actively been in business in their state of domicile as an authorized insurer for less than five years must have an additional surplus equal to at least 100% of the paid-in capital. If the insurer has been active for less than five years in one or more states, the additional surplus must equal at least 50% of the paid-in capital. In the non-standard market, a surplus lines producer cannot place insurance with an unauthorized insurer unless the unauthorized insurer has upheld its good reputation and financial integrity. Maintaining financial integrity would consist of keeping up its capital and surplus requirements in its domiciled state or, at the very least, maintained at least $15,000,000 in capital and surplus.

In order to place a risk in the non-standard market, a producer must attempt to place business with at least three insurers authorized and conducting that line of business in Montana. A producer must make a diligent effort and complete the Montana Surplus Lines Submission Form. The form affirms that the producer tried to find coverage with an authorized insurer but due to the amount of coverage needed and/or the type of risk, the producer had to place the risk with an unauthorized insurer.

In its standard and non-standard market, Montana enforces a 2.75% premium tax that is calculated using the total premium dollars. It is the responsibility of the surplus lines producer in the non-standard market to pay the commissioner all of the taxes owed upon filing the annual statement on or before March 1st. The Montana commissioner can revoke or suspend the certificate of authority of any insurer who fails to pay taxes.

Russ Ehman can be contacted at (406) 444-4350 and rehman@state.mt.us.

http://www.sao.mt.gov/Surplus%20Lines/Revised%20procedures%20from%20MSLAA.pdf

http://data.opi.state.mt.us/bills/mca_toc/33.htm

http://data.opi.state.mt.us/bills/mca_toc/33_2_3.htm

North Carolina

North Carolina Statutes stipulate the amounts of capital and surplus necessary for an insurer to be licensed and allowed to conduct business within the state. North Carolina’s requirements are listed in the following table for domestic insurers.

Type of Company	Paid-in Capital	Paid-in Initial Surplus	Minimum Capital	Minimum Surplus
Stock Life	$600,000	$900,000	$600,000	$150,000
Stock Accident and Health	400,000	600,000	400,000	100,000
Stock Life, Accident, and Health	1,200,000	1,800,000
Stock Fire and Marine	800,000	1,200,000	800,000	200,000
Stock Casualty, Fidelity and Surety	1,000,000	1,500,000	1,000,000	250,000
Mutual Fire and Marine (Limited assessment)	500,000	$300,000		$300,000
Mutual Fire and Marine (Assessable)				60,000
Mutual Fire and Marine (Nonassessable)		800,000		800,000
Town or County Mutual				15,000
Mutual Life, Accident and Health	1,000,000	500,000

North Carolina’s requirements are listed in the following table for foreign insurers.

If an insurance company fails to comply with the requirements, the commissioner will not allow the insurer to conduct business until the company meets the conditions required by law. If a licensed insurer falls below the state’s standards, the company will have ninety days or less to comply with the commissioner’s orders. The commissioner may require an insurer to maintain a larger amount of capital or surplus than instructed in the statutes. The new amounts are based upon the amount and type of insurance transacted by the insurer. In addition to capital and surplus requirements, foreign life insurers are required to deposit at least $400,000 while the minimum deposit for a foreign property and casualty insurer is $200,000. Surplus line carriers must meet a capital and surplus requirement of $15,000,000 or higher in order to conduct business in North Carolina.

According to North Carolina’s Statute, a diligent effort must be performed before insurance can be obtained in the non-standard market. Like most states, a diligent search is made among insurers who are admitted to transact and write the specific kind and class of insurance in North Carolina. Once the diligent search is performed and no insurers in the standard market are willing to take the risk, an insurance producer can place the risk in the non-standard market.

In the non-standard market, a 5% tax is imposed and calculated using the gross premiums less any return premiums. Surplus lines producers must pay the commissioner the tax required in timely manner. The standard market tax is only 1.9% of the gross premium collected.

Anne Morgan, an admissions officer, can be contacted at 919-733-5633 or amorgan@ncdoi.net.

http://www.ncdoi.com/FED/CA/fed_ca_domestic.asp

http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_58/GS_58-7-75.html

http://www.ncdoi.com/ls/documents/bulletins/2002/02-b-05%20-%20nc%20current%20maximum%20premium%20tax%20rate%20of%201.9%25.pdf

http://www.ncsla.com/index.php?&MMN_position=1:1

Louisiana

Line of Insurance	Stock Companies			Mutual Companies
	Paid-in Capital	Minimum Surplus	Operating Surplus	Initial Minimum Surplus	Operating Surplus
Life	$100,000	$1,900,000	$1,000,000	$2,000,000	$1,000,000
Health and Accident	100,000	1,900,000	1,000,000	2,000,000	1,000,000
Vehicle Physical Damage	100,000	1,150,000	1,000,000	1,250,000	1,000,000
Title	100,000	400,000	500,000	500,000	500,000
Industrial Fire	200,000	800,000	1,000,000	1,000,000	1,000,000
Vehicle	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Liability	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Workers’ Compensation	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Burglary and Forgery	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Glass	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Fidelity and Surety	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Fire and Extended Coverage	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Steam Boiler and Sprinkler Leakage	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Crop and Livestock	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Marine and Transportation (except hull)	650,000	1,350,000	1,000,000	2,000,000	1,000,000
Miscellaneous	650,000	1,350,000	1,000,000	2,000,000	1,000,000

The Louisiana Insurance Code stipulates that these requirements must be met within one year from the date of the company’s charter. Insurance companies cannot conduct business until all requirements have been met. The Code also requires surplus line insurers to have at least $15,000,000 in capital and surplus before they can operate in the state. Foreign surplus line insurers must submit an application to the Louisiana Department of Insurance and also make a deposit of at least $100,000 in a state licensed financial institution or obtain a $100,000 surety bond.

Surplus line insurers must submit the surplus lines premium tax of 5% on or before March 1st, June 1st, September 1st, and December 1st of each year. The tax form must be postmarked by the U.S. Postal Service on or before the due date. If the form is sent through another carrier, the statement must be received by the Department of Insurance no later than one day past the stated due dates. Insurers who do not pay the tax in a timely manner are charged a fine of $100 and may be charged a 10% increase on the total amount of taxes previously owed. Companies who have multiple offenses could lose their license to do business in the state. In the standard market, the premium tax rate is 2.25%.

Louisiana Code requires that surplus line insurers conduct a diligent search and receive three declinations in the standard market before a risk can receive coverage in the non-standard market with a surplus lines insurer. The law stipulates that the declinations must be in written form and submitted to the surplus lines insurer or broker. It is recommended that the broker keep the declinations batched with the insurance policy to have a record that can be easily accessed by the commissioner and the Louisiana Department of Insurance.

Cindy Sarvis can be contacted at 225-219-4138 or csarvis@ldi.state.la.us.

http://www.naic.org/industry_ucaa_state_specific.htm#nc

http://www.ldi.state.la.us/Licensing/Company/alertpage.htm

http://law.justia.com/louisiana/codes/6/6.html

http://www.ldi.louisiana.gov/FinancialSolvency/Surplus_Lines/tax_faq.htm

State vs. Federal Regulation of the Standard Market

The debate over state verses federal regulation of the insurance industry continues to progress. People continue to question which level of government should regulate insurance. State insurance departments currently regulate the insurance industry. The legal authority for states to regulate the insurance industry comes from the McCarran-Ferguson Act of 1945. Each state elects or appoints a commissioner who becomes a member of the National Association of Insurance Commissioners (NAIC). Insurance commissioners have the responsibility to administer statutes, conduct premium rate hearings, and issue, revoke, and suspend an insurer’s license to conduct business in the state. Although the NAIC has no regulatory authority, the organization does develop model bills for the consideration of state legislatures. In a way, the group is a movement toward national uniformity in insurance law.

Insurance formation, licensing, insurer solvency, rates and forms, and market conduct are all currently regulated by state insurance departments. However, there are currently some proponents advocating federal regulation. These advocates, usually consumers and the federal government, believe that uniform federal regulation would be more efficient than our current system. If insurance professionals were taught and had to know only one manual of laws and regulations, insurance companies could conduct business easier. National business insurers currently have to deal with fifty state departments when they could only have to deal with one federal department of insurance. Supporters also argue that supporting one department of insurance would be less expensive to tax payers. Federal regulation also appeals to a superior section class of the work force. The federal government would pay higher salaries than state departments for personnel and the title of government worker is highly respected. These two factors attract individuals who would do an excellent job of regulating insurance.

Proponents for state regulation, including state regulators and insurance companies, believe that state departments are beneficial since they respond quickly to local problems. States have different weather, geography, and demographics. These factors require a skilled, knowledgeable workforce to handle problems specific to the state. Federal regulation would involve red tape and official procedures that hinder progress when regions experience catastrophic events. State departments can also test new regulation methods to see if it is conducive to businesses in the industry and consumers. If the state regulation fails, it only affects one state. However, when federal regulation fails, the entire country is thrown into utter turmoil. Furthermore, we already know the strengths and weaknesses of the current system. Changing to a federally regulated system creates unforeseen consequences. Supporters of state regulation also insist that the current state administrations are easily accessed by the public. This allows consumers to receive quality customer service. Under federal regulation, a consumer would have to call federal agents, wait for assistance, and receive help from personnel who may or may not be well informed of a specific exposure in the consumer’s region.

In my opinion, states seem to be doing an excellent job regulating the insurance industry. State departments have adequately handled exposures specific to each region in order to assist their residents. Insurance companies continue to emerge and grow while consumers pick policies that suit their pocketbook. Remember, insurance companies are regulated for the following three reasons: to protect consumers, to maintain insurer solvency, and to prevent destructive competition. As long as prices and rating practices are fair to consumers, insurance companies are solvent, and insurance coverage is widely available, state regulation should remain in force. The federal government should not try to fix something that is not broken.

Marketing Surplus Lines

Insurance companies provide a vast array of policies; however, an insurer’s marketing plan for policies ultimately decides the profitability and success of the company. Wedding Insurance is a coverage that has grown in popularity. Many couples are making a significant financial investment in order to make their wedding day special. Due to its nature as a unique and high-capacity risk, wedding coverage is essential should the unthinkable occur. If the caterer goes out of business or if the venue is flooded; a wedding or civil partnership ceremony could be ruined. The policy’s target market consists of engaged couples. Policyholders, heterosexual and homosexual couples, require a significant amount of coverage to recover their losses and rearrange the ceremony. Problems with the ceremony, reception site, weather, vendors, sickness, or injury are the top concerns come wedding day. The product will be offered in different tiers with varying policy limits and deductibles. The policy offers wedding comprehensive liability coverage which can provide personal and public liability and other features to protect against the loss or damage to ceremonial attire, rings, presents, cakes, photos, video, and flower arrangements. A new coverage option, liquor liability, provides protection if a policyholder is held liable for an alcohol-related accident. Additional coverage such as failure of supplier or service business and transportation coverage permits couples to get their deposits back or pay for a new vendor in case of an emergency. Different coverages such as cancellation and rearrangement of the wedding and/or reception protect one of a couple’s largest financial investments and reduces their total exposure to loss.

The company will utilize an MGA as an intermediary between the agent and carrier. Underwriters will analyze the information in the application, determine if the risk is acceptable and then decide whether to issue the policy. All couples need to show deposit receipts for goods and services rendered. Couples will need to apply for Wedding Insurance between six months and five years of the big day. Any change in bride or groom will void the policy. Age is an important underwriting consideration of this policy. Couples who are underage and must have special permission from their parents to wed will not be eligible for coverage. Insureds should frequently review the amount of coverage needed and notify the company if requirements change by submitting documentation.

Wedding insurance premiums are based on a variety of rating factors. One factor is coverage limit and corresponding deductible. Another important factor will be the location of the ceremony and reception. Weather patterns in these sites will dictate the rating class. Rates will increase or decrease dependent upon frequency of bad weather in a locale. Insureds can get a lower rate if the policy is bought well in advance of the nuptials rather than the minimum six months prior. An important consideration that should not be overlooked is whether the ceremony is going to be indoors or outdoors. If the wedding is outdoors, the bride and groom should have a back up plan in case of inclement weather. If there is no back up plan for an outdoor wedding, the rate will be substantially higher than if one existed.

The product will be advertised through bridal fairs, magazines, boutiques, and collaboration with local wedding planners. Representatives of the carrier will set up a booth at bridal fairs in order to educate brides-to-be about the product offerings. Since funds are not unlimited, the carrier should choose the most popular wedding magazines in which to advertise in order to get the most utility for the dollar. Pamphlets and signs will be displayed at prominent bridal boutiques so potential customers can be introduced to the protection available to them for their big day. Probably the most successful way to market this type of insurance is to build working relationships with wedding planners. Engaged couples seek out wedding planners to help them make their day memorable while staying within their budget. An important part of planning should be protecting the large investment that goes into this day. Like life insurance is vital to financial and estate planning, wedding insurance should be of utmost importance when planning a wedding.

To conduct business effectively, a substantial investment must be made for technology support. A technology support system must be created that can adjust as the product changes due to growth and evolving customer preferences. Computer software should be purchased that can offer quotes, store pertinent coverage and claims information, and produce billing documentation. The company should provide an operating system with the capability to sustain all daily activities an employee would need to fulfill job duties and allow for customer satisfaction. The carrier should support an in house claims department which allows the carrier to monitor the efficiency and effectiveness of claims personnel. Customers should be able to call in and file a claim with an employee. The claims adjuster will then go out and determine the severity of the loss. Adequate communication between the adjuster and the customer should be facilitated by a policy where claims employees should make themselves available during all business hours.

Insurance companies are expected to have a certain amount of capital and surplus to begin selling insurance. The capital and surplus requirements are enforced to ensure the solvency of insurance companies and in order to pay claims.

Due diligence searches that require that a certain number of declinations be submitted to the regulators as proof of the search. This is so that the admitted and non-admitted markets are not in competition with one another.