Montana Surplus Lines Agents' Association

Montana Surplus Lines Agents' Association

Here is a letter from the Montana Department of Insurance in regards to the confusion caused by the “10% AND $1500 exception” MCA 33-2-302 (2) that was established in the 2005 legislative session. Please read this as it is very important.

June 12, 2006

To All Surplus Lines Producers:

Under Montana Law, a producer can place a risk in the surplus lines market only when certain statutory criteria requirements are met. They must be able to demonstrate that they have tried to place it first in the admitted market by showing that the risk had been declined by at least three companies in that market. In the past, there was no exception to this. If a risk could be placed in the admitted market, but the insured could actually get a better premium or better terms of the contract in the non-admitted market, the risk had to be placed in the admitted market. Since the last legislative session there has been a change in this.

Now, a producer can place a risk in the surplus lines market (even if it is available in the admitted market) for the benefit of obtaining a lower premium only when there is difference in premium of at least 10% AND $1,500 less than the premium rate quoted by any and all admitted carrier(s). In order for an agent to do this however, the company must have a financial rating of "A" or better as well as a disclosure form required and provided on the MSLAA website. In looking at the actual code, it could appear that the rating is "A-" or better. This is because there is a hyphen in the specific code. The purpose of this memo is to clarify (for producers) that the financial rating must be at least an "A". The "A-" rating would not be acceptable to the Department of Insurance under MCA 33-2-302 (2) if it were brought to our attention. It is understandable that by looking in that section of code "A-" appears acceptable, but this memo is to clarify our position on this issue.

If you have any questions, feel free to contact me at 800-332-6148.

Barbara van der Mars

Compliance Specialist

Montana Department of Insurance

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Inland Marine is Subject to Fire Premium Tax.

There have been some questions raised regarding Fire Premium tax on Inland Marine. Here is the answer I received from the Montana Department of Insurance.

Effective January 1, 2004 all submissions received by the Montana Surplus Lines Stamping Office will be subject to the 2.5% Fire Premium Tax on Inland Marine premiums. Tax is calculated using 60% of the base Inland Marine premium multiplied by 2.5% Fire tax.

33-2-317. Exemptions. The Surplus Lines Insurance Law does not apply to reinsurance or to the following kinds of insurance when placed by a licensed insurance producer of this state:
(1) wet marine insurance;
(2) insurance on subjects located, residing, or to be performed wholly outside of this state or on vehicles or aircraft owned and principally garaged outside this state;
(3) insurance on property or operations of railroads engaged in interstate commerce; and
(4) insurance of aircraft owned or operated by manufacturers of aircraft or aircraft operated in scheduled interstate flight or cargo of the aircraft or against liability, other than workers' compensation and employers' liability, arising out of the ownership, maintenance, or use of the aircraft.

50-3-109. Tax on fire insurance premiums. (1) Each insurer authorized to effect insurance on risks enumerated in subsection (2) that is doing business in this state shall pay to the state auditor during the month of February or March in each year, in addition to the taxes on premiums required by law to be paid by it, taxes on the fire portion of the direct premiums on the enumerated risks received during the previous calendar year after deducting cancellations and return premiums. A tax of 2 1/2% must be deposited in the general fund as provided in 33-2-708.
     (2) The risks referred to in subsection (1) are:
     (a) insurance of houses, buildings, and all other kinds of property against loss or damage by fire or other casualty;
     (b) all kinds of insurance on goods, merchandise, or other property in the course of transportation, whether by land, water, or air;
     (c) insurance against loss or damage to motor vehicles resulting from accident, collision, or marine and inland navigation and transportation perils;
     (d) insurance of growing crops against loss or damage resulting from hail or the elements;
     (e) insurance against loss or damage by water to any goods or premises arising from the breakage or leakage of sprinklers, pumps, or other apparatus;
     (f) insurance against loss or legal liability for loss because of damage to property caused by the use of teams or vehicles, whether by accident or collision or by explosion of any engine, tank, boiler, pipe, or tire of any vehicle; and
     (g) insurance against theft of the whole or any part of a vehicle.

COMPLYING WITH MONTANA LAW AND COMPANY APPOINTMENTS

August 2001 -- Producers may not hold themselves out in any way as a representative of a company for which they are not appointed under Montana Law. This does not necessarily mean a producer can’t assist the consumer in finding coverage and servicing their client. The Independent Insurance Agents’ Association of Montana (IIAM) is writing this article and asking the Montana Insurance Department to review and approve the content before printing… Read the entire article here.