SLA Quarterly
Jerry Sullivan Chairman's Report

"... one wonders whether America will be remembered as the economy that ate its own young in order to appease the insatiable appetite of the regulatory state."

The above is an excerpt from a recent article in the "Opinion" section of the Wall Street Journal. Although the article dealt with issues outside of the California surplus line community, that comment struck a familiar cord within this battle weary surplus fine body of mine. The non-admitted industry in this state has been through an awful lot these past few years. Much has been improved in the way of communication and cooperation between the industry, the regulators and the legislators. The issues which were of great concern to the folks in Sacramento are now under control. New and more effective controls have been put in place, greatly improving the quality of the non-admitted insurers in this state.

One would think with all of these positive steps and signs, legislation would take a holiday. I predicted just that several times last year, writing, "we should have a relatively quiet legislative year in 1995." But Sacramento continues to proffer more and more legislation in our area.

Dave Anderson, Chair of the Legislative Committee, has done an excellent job keeping us all informed about several of the pressing issues currently before us, particularly on pre-answer bonds, the export bill and the very important broker liability issue. It is extremely important that we remain active and informed when it comes to legislative issues.

What is currently being considered by the State legislators in regard to strict broker liability can and should be accomplished by strengthening the laws dealing with fraud, both here in California and at the Federal level. Done correctly this will in no way interfere with normal proper surplus line brokerage activities, but will in turn allow both regulatory and other law enforcement agencies to more effectively deal with those attempting to operate in and around our industry on a criminal basis.

On a different issue, the bond required by the California Insurance Code with respect to surplus line brokers, has never been a matter of much discussion in our business. However, there have been some suggestions that the bond should cover items better covered by errors and omissions policies. The bond was originally established to assure that surplus line brokers would pay the tax due under the contracts placed.

Extending the bond's obligations much beyond that original area would significantly change our relationship with the entire surety industry.

To demonstrate the creativity of the restless legal mind, a rarely used but long-standing section of the Code has been invoked: the pre-answer bond. This section of the Code requires a non-admitted insurer to post bond in the amount of the prayer in the case at hand before the non-admitted has a right to respond to the legal action: Despite the Constitutional questions as to equal access to the courts that this issue raises, it does put non-admitted insurers on an entirely different playing field than that of admitted insurers, and is very likely to drive many out of our state.

On many of these legislative issues, time is needed. Time needs to be given to those laws which we have just passed to properly gauge their effect and impact before we go onto another round of legislative creationism.

While legislation and regulation have become a more significant part of the every day working of the SLA, we must also give our attention to education and assisting our membership in providing the best service possible to the insurance buyers of this state. In a major step to get back to our education roots, the SLA, with Lloyd's of London, cosponsored a "Meet the Market" seminar in Los Angeles in June. Attended by over 500 surplus line brokers and several state regulators, this was an, extremely timely and informative seminar, aimed at educating its audience as to the financial restructuring currently underway at Lloyd's and what impact it will have on the California consumer (which in a nutshell is none). The keynote speaker, Chairman David Rowland, was extremely candid and reassuring as to what we can all expect from this state's largest non-admitted market. This was an historic and extremely successful event, only made possible by your participation and the hard work of the people at Lloyd's, the staff at the SLA and several individuals in the industry.

It has become quite dear that legislation has become a permanent part of our every day business lives. We will have to confront it, or it will confront us.. The impact to us as business people, consumers, and tax payers is far too great to ignore.

- Jerry Sullivan

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