California Insurance Code Section 1763: Confidential Report

California Insurance Code Section 1763: Confidential Report of Placement Diligent Search Lower Rate Filing Revised 1/2024 1

The California Insurance Code provides very specific instructions on the responsibilities of the surplus line broker. This presentation is a summary of those requirements. 2

Regulatory Requirements .4 Diligent Search .5 SL-2 Diligent Search Report .6 Confidential Report of Placement .7 SL-1 Confidential Report of Surplus Line Placement .8 Lower Rate Filing .9 3

California Insurance Code Section 1763 outlines the conditions for surplus line brokers placing insurance for a home state insured: 1. Ensures a diligent search is conducted among admitted insurers that write the type of coverage. 2. Files a confidential report of placement with the Commissioner or his or her designee within 60 days of placement. 3. Placement should not be placed with a nonadmitted insurer for the sole purpose of securing a lower rate of premium. 4

Each surplus line broker must file a standardized form (Diligent Search Report, or SL-2 form) documenting the diligent efforts to place coverage with at least three admitted insurers. The Diligent Search Report must be signed by a person licensed under the California Insurance Code who conducted or supervised an unlicensed person or persons who actually conducted the search. The Diligent Search Report is prima facie evidence that three admitted insurers that write the type of insurance declined the risk. 5

SL-2:Diligent Search Report This form is available on the SLA website: http://www.slacal.com/docs/default-source/general-content-documents/Filing-Forms/sl2-printable.pdf?sfvrsn 2 6

Within 60 days of placing insurance for a home state insured, the surplus line broker should file a confidential written report (Confidential Report of Placement, or SL-1 form) with the Commissioner or his or her designee. The report will include the name and address of the insured, verification that the insured is a home state insured, identity of the insurer or insurers, a description and location of the risk, and the amount of premium. The report should be submitted with a copy of the policy declarations page, certificate or binder evidencing placement of insurance. 7

SL-1: Confidential Report of Surplus Line Placement This form is available on the SLA website: http://www.slacal.com/docs/default-source/general-content-documents/Filing-Forms/sl-1-form-printable.pdf?sfvrsn 4 8

California Insurance Code Section 1763(c): Insurance is placed in violation of this section if the insurance is placed with a nonadmitted insurer at a lower rate of premium or the lowest premium that could be obtained from an admitted insurer. Exception: If at the time the insurance attaches, the surplus line broker files with the Commissioner a statement describing the insurance, stating the rate and the closest procurable rate from admitted insurers, and the reasons the insurance must be placed with a nonadmitted insurer. If the filing broker does not hear from the Commissioner or his or her designee within five days the broker may maintain the insurance. 9