Managing Underwriter Bill Creates Unwelcome Surprise for Some Texas Agents

A bill passed during the 2011 session of the Texas Legislature is creating havoc for some independent insurance agents in the state.

House Bill 3410 creates a definition of a managing underwriter, and addresses the filing of surplus lines policies and payment of taxes on those accounts.

Historically, surplus lines policies have been filed with the Surplus Lines Stamping Office by managing general agents, which also collects and remits the resulting taxes. As a result of HB 3410, however, some retail agents are finding they are responsible for filing on certain accounts.

The bill states that a managing underwriter is “a surplus lines agent or agency that exercises, pursuant to a written agreement with an eligible surplus lines insurer, underwriting authority for the eligible surplus lines insurer and that derives the agent or agency’s business from a surplus lines agent.”

HB 3410 also states: “Notwithstanding any other law, a surplus lines agent that places an insurance policy with a managing underwriter … shall collect, report, and pay the tax imposed.”

The “law was drafted to clarify which surplus lines brokers should collect and remit the taxes when both were involved in the account,” explained David VanDelinder, executive director of the Independent Insurance Agents of Texas, during an IIAT webinar in December 2012.

It “establishes that if a broker is accessing a carrier program through another broker, who’s acting as the underwriter on that program, then the first broker makes the filings,” VanDelinder added.

The problem for retail agents who also hold surplus lines agent licenses is that the law is being interpreted to mean that “that the retail agent that holds the surplus lines license is responsible for collecting and paying the surplus lines fees,” said Kathy van Eeten, president of the Texas Surplus Lines Association.

“That’s never been the case and the agents don’t want that responsibility,” van Eeten told Insurance Journal. “Why do they hold a surplus lines license anyway? Most of them do that because from time to time they have opportunities to work directly with some of their carriers … with an E&S policy and they have to have the license.”

Under the law, VanDelinder said, a retail agent or agency holding a surplus lines license who places coverage through an underwriting program with an MGA, has “to make the filings for the taxes. This is not the intent of the drafters … and certainly not the customary way we do business.”

Problems arise when the retail agent is unaware that the account is being written through an underwriting program.

“The first step in this process is to clarify whether this account is being placed in an underwriting program with that MGA and what your responsibilities will be going forward,” VanDelinder advised.

“We have talked to the comptroller’s [office], we’ve talked to the department of insurance and everyone agrees the only fix in this is a legislative fix. And we will be making sure that fix is filed as an amendment to this law,” VanDelinder said.

In the meantime, a retail agent with a surplus lines license that is not being used may want to consider having it withdrawn. Also, agents who don’t hold a surplus lines license are “not required to make these filings,” he said.

Van Eeten said TSLA will be working closely with IIAT and lawmakers in the effort to get the law changed.