A Guide to Writing E&S Business - Licensing Rules and Regulations
Chapter 5: Licensing Rules and Regulations
Congress’ passage of the Gramm-Leach-Bliley Act (GLBA) caused the NAIC to speed the development of the new NAIC Producer Licensing Model Act (PLMA).
The reciprocity provisions of the PLMA also extend to surplus lines producers. A majority of states treat surplus lines as a distinct license type. Persons holding a surplus lines producer license in their home states shall receive nonresident surplus lines producer licenses unless some other reason for disqualification exists.
Under the uniform resident licensing standards (“URLS “) promulgated by the NAIC, a producer who wishes to engage in the sale of surplus lines insurance (SLI) must first obtain a surplus lines producer license. This is considered a license type and not a line of authority. The URLS require that a resident hold both property and casualty lines of authority before a SLI producer license can be issued.
Under the reciprocity provisions of GLBA, if a producer holds the SLI license in the producer’s home state and is in good standing in the producer’s home state, the nonresident state must grant a license. The NAIC Uniform Application is to be used for application as a surplus lines producer.
Some states also require a resident producer placing SLI to complete an examination or post a bond. However, to comply with the reciprocity provisions of GLBA and Section 8 of the PLMA, these requirements cannot be imposed on nonresidents. States also cannot impose an additional CE requirement on nonresident SLI producers.
SLI producers are routinely subject to additional state administrative requirements. The administration of surplus lines by states is different than other types of insurance because states typically require the producers to perform certain compliance activities that would usually be the responsibility of the insurance company.
One example of these additional requirements is that a producer must first establish that coverage is not available from the admitted market before going to the surplus lines market. In order to determine whether or not such coverage is available in the admitted market, typically the producer must perform a diligent search. A diligent search requires a producer to obtain a specific declination of coverage from a certain number (generally three) of admitted companies who are engaged in writing the type of coverage sought. If no admitted company is writing this type of insurance, the producer may approach those nonadmitted companies who would most likely write the type of coverage sought.
State insurance laws require that surplus lines insurers satisfy specific financial criteria in order to be eligible to write surplus lines insurance in the state. With the exception of New Jersey, states do not have guaranty funds to pay for losses incurred by policyholders of surplus lines insurers which become insolvent.
Statement of Diligent Effort Form 
