On June 13, Florida Gov. Ron DeSantis signed House Bill 1549 into law. Among other things, the bill has removed the “diligent effort” requirement applicable to surplus lines agents.
The bill marks a substantial swing toward removing barriers to entry in the surplus lines insurance space. Florida joins Louisiana, Mississippi, Virginia, and Wisconsin as states that have removed the diligent effort requirement entirely. Moreover, a number of states in the last few years have adopted statutes waiving the diligent search requirement on certain commercial lines risks involving retail producers. Further, some states such as Colorado simply leave it to the broker’s knowledge of the market, see Colo. Code Regs. 2-4-1 § 7, which states that “[i]f the broker can attest in writing that they are familiar with the insurance market and that a particular risk cannot be placed in the admitted market, or the broker has accepted an affidavit by the producer attesting to such, then the requirement to satisfy due diligence by documentation that the coverage required was not procurable after a comprehensive search was made from a minimum of three admitted insurers shall be waived.”
The bill also requires that an insured who receives a surplus lines insurance policy sign or otherwise be provided a documented acknowledgement stating, among other things, that “surplus lines insurers’ policy rates and forms are not approved by any Florida regulatory authority.”
It is important to remember that neither the bill nor most surplus lines statutes across the country actually provide for the total de-regulation of surplus lines products. In particular, while the bill indicates that Florida does not approve rates and forms, it does not follow that surplus lines brokers, insurers and insurance policies are exempt from Florida’s insurance laws; rather, surplus lines insurers are only specifically exempt from the requirement to file insurance rates and forms for approval. As an example, Florida is one of the few states in the country that maintains an insurance cancellation and nonrenewal statute specific to the surplus lines market (see Fla. Stat. § 626.9201).
It may be tempting to structure group property and casualty surplus lines insurance programs in Florida to remove the diligent effort requirement across the country, but that has potential pitfalls. First, while a surplus lines producer may be relieved of completing the diligent effort requirement as to Florida home-stated master policyholder, if a certificate holder under such master policy is in another jurisdiction where the diligent effort requirement remains in place, that state may very well apply its diligent effort standards to that certificate holder. Group property and casualty insurance is highly regulated in Florida and often requires, among other things, active participation in a plan of risk management (see Fla. Stat. § 626.973).
Nevertheless, the trend across the United States is to provide more means for surplus lines carriers and brokers to offer nonadmitted insurance coverage. As examples, more states continue to pass laws allowing for accident and health insurance products to be written through the surplus lines market; many states are allowing for the formation of domestic surplus lines insurers; and, increasingly, U.S. jurisdictions are allowing the surplus lines market to satisfy financial responsibility requirements in certain situations (for example, peer-to-peer car sharing and transportation network company coverages, although general commercial motor vehicle risks remain a challenge). We fully expect further expansion of the surplus lines market in the years to come.
