Exempt Commercial Purchaser Reporting to SLSOT

Beginning January 1, 2013, the Texas Department of Insurance (TDI) will require agents, when reporting to the Stamping Office, to identify policies that were procured for an “Exempt Commercial Purchaser” (ECP) without conducting a diligent effort for coverage in the admitted market. This may be done in one of three ways:

1. Paper Filers – Paper filers must submit the new “Exempt Commercial Purchaser Form” (sample attached).
2. EFS Filers (programmatic method) – EFS filers submitting business through the Electronic Filing System (EFS) using the programmatic method simply set the ECP flag to “Yes”. Instructions can be found in the Technical Reference Supplement on the EFS website, as previously informed by global email on 07/28/11.
3. EFS Filers (web entry) – Those filing through web entry will only need to change “No” to “Yes” on the ECP button.

Note this requirement is for policies filed with the Stamping Office on or after January 1, 2013. Please refer all questions regarding the regulation of an exempt commercial purchaser policy to the Texas Department of Insurance.

Is the Buyer an “Exempt Commercial Purchaser?”

A surplus lines agent is not required to meet the Texas diligent effort law if the buyer qualifies as an ECP under the federal Nonadmitted & Reinsurance Reform Act (NRRA) and follows the “streamlined application” procedures permitted under the NRRA. Those procedures require the agent first to disclose to a purchaser who meets the NRRA definition of an ECP that coverage “may or may not be available from the admitted market that may provide greater protection with more regulatory oversight.” After receiving this disclosure, the exempt commercial purchaser must request in writing that the agent procure the coverage in the surplus lines market. The NRRA defines an ECP as a buyer who meets the following requirements:

1. Employs or retains a qualified risk manager.
2. Pays aggregate nationwide commercial property and casualty insurance premium in excess of $100,000 in the immediately preceding 12 months.
3. Satisfies at least one of the following:

a. Possess a net worth in excess of $20 million;
b. Generate annual revenues in excess of $50 million;
c. Employ more than 500 full-time employees per individual insured or be a member of an affiliated group employing more than 1,000 employees in the aggregate;
d. Be a not-for-profit organization or public entity generating annual expenses of at least $30 million; or
e. Be a municipality with a population in excess of 50,000 persons.

NRRA Qualified Risk Manager Requirements

Under the NRRA, a qualified risk manager with respect to a policyholder of commercial insurance means a person who meets all of the following requirements:

A. The person is an employee of, or third-party consultant retained by, the commercial policyholder.

B. The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance.

C. The person –

(i)(I) has a bachelor’s degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a State insurance commissioner or other State regulatory official or entity to demonstrate minimum competence in risk management; and

(II)(aa) has 3 years of experience in risk financing, claims administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance; or

(bb) has –

(AA) a designation as a Chartered Property and Casualty Underwriter (CPCU) issued by the American Institute for CPCU / Insurance Institute of America (now known as The Institutes);

(BB) a designation as an Associate in Risk Management (ARM) issued by The Institutes;

(CC) a designation as Certified Risk Manager (CRM) issued by the National Alliance for Insurance Education & Research;

(DD) a designation as a RIMS Fellow (RF) issued by the Global Risk Management Institute; or

(EE) any other designation, certification, or license determined by a State insurance commissioner or other State insurance regulatory official or entity to demonstrate minimum competency in risk management;

(ii)(I) has at least 7 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and

(II) has any 1 of the designations specified in subitems (AA) through (EE) of clause (i)(II)(bb);

(iii) has at least 10 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; or

(iv) has a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a State insurance commissioner or other State regulatory official or entity to demonstrate minimum competence in risk management.