California Surplus Lines Stamping Fee Goes to 0.25% in 2020

The Surplus Line Association of California board has voted to adjust the stamping fee to 0.25%, effective Jan. 1, 2020, the group announced earlier this month.

The stamping fee has been set at 0.2% for seven years, the longest recorded period of time that the SLA has gone without changing the stamping fee, according to the group.

The stamping fee is the primary source of revenue for the SLA, a non-profit association. The revenues fund all SLA operations, including a data analysis department that reviews roughly 800,000 surplus lines filings annually on behalf of the California Department of Insurance.

The SLA is responsible for reviewing every surplus lines policy filed in the state to ensure compliance with laws and regulations. It also reviews out-of-state insurers for solvency, and helps brokers comply with laws and regulations.

“We did not take this action lightly,” Robert Gilbert, chair of the SLA board, said in a statement. “We know that a change in the stamping fee is a cost and an inconvenience for policyholders, as well as our members and their employees who file surplus lines policies with the SLA. In fact, our members have told us that they prefer no change at all, whether it is an increase or a decrease, because the clerical adjustments create extra work and system changes can be confusing. That is why we kept the stamping fee constant for seven years.”

But the increasing costs associated with a rapidly growing marketplace, as well as the need to address a large pension liability, made it necessary to raise the stamping fee, according to Gilbert’s statement.

In 2012, the last year the SLA changed the stamping fee, the association reviewed and processed 471,319 policies. By 2018, that number had increased to 687,194. In 2019, the SLA processed 325,952 policies in just the first four months of the year, according to the group.

“The share of commercial insurance premiums going into surplus lines in California has risen from about 7% a decade ago to approximately 18% today, and this has fueled a dramatic growth in policies for us to analyze,” Benjamin J. McKay, the SLA’s CEO and executive director, said in a statement. “To keep up with the marketplace growth, we have had to significantly increase hiring in our department that reviews these policies and ensures they are in compliance with all the pertinent laws and regulations governing surplus lines in California.”

Also playing into the board’s decision was the need to retire the SLA’s pension liability. The SLA phased out its pension in 2011 in favor of a 401(k) program, but employees covered under the pension plan prior to then are eligible for lifelong benefits upon retirement.

The SLA has received estimates indicating that annuitizing the pension and taking it off the books will cost roughly $15 million. With the carrying costs of the pension quadrupling from about $140,000 to $560,000 a year, maintaining the pension has become a significant annual material cost to the SLA, the group said.

“Fiscal responsibility dictates that eliminating this liability is the smart thing to do,” McKay added

The 0.25% stamping fee amounts to $1 in revenue for the SLA for every $400 it processes in premiums.

The group noted that this is below the midpoint (0.3%) of the SLA’s stamping fee variance since 1977, and very close to the mean (0.24%) during that time.

The lowest stamping fee for the SLA over the last 42 years was 0.1% over a four-year period from Jan. 1, 1987, to Dec. 31, 1990, while the highest was 0.5% over a two-year period from Jan. 1, 1994, to Dec. 31, 1995, the group’s records show.

The SLA operates as a self-governed private organization.