Surplus Line Filing Procedures, Rules & General Information

Each policy and premium bearing endorsement issued under an Illinois surplus line producer license must be filed with the Association. Filing your surplus line policies and endorsements with the SLAI should be done on a timely basis. If you believe that waiting for the policy paperwork would cause a delay in filing, and you have a binder, make the filing based on the binder information. Remember, it is unlawful to deliver the policy to the insured before it has been filed with the SLAI.

Make sure:

• the insured's home state is Illinois;
• you've used an eligible insurer;
• the policy has a service of suit clause;
• you've placed the proper Notice to Policyholder on the policy;
• taxes and fees are on the declarations page;

Paper filing is no longer supported. Sign up for the Electronic Filing System (EFS).

You must register for electronic filing before your account will be set up.

The EFS is intuitive and easy to use. Help is available for each screen and for each field by clicking on the help button at the top of the screen or on the letter "i" in a blue circle anywhere it appears.

There are some EFS help topics here.

Before entering your electronic filing, make sure you've complied with all the requirements listed in the Procuring Surplus Line Polices section of this manual, paying special attention to the Policy Requirements & Notices.

When making an filing based on a binder (in lieu of a policy), you must have a company binder with a policy number ("to be assigned" or "not available" will not suffice as a policy number).  The binder must include the Notice to Policyholder wording and service of suit requirements.  When the policy becomes available you don't need to file it with the SLAI since you've already filed the binder, but you should attach a copy of the EFS filing confirmation page before delivering it to the insured.

Reports

the SLAI provides the following reports to members:

• Monthly Activity Report. Mailed to members by the 15th of the following month. This is a record of all filings we received for a given month.
• Monthly Stamping Fee Invoice. You are billed for stamping fees on a monthly basis. These invoices are mailed with the monthly Activity Report by the 15th of the following month. Stamping fee payments are due by the end of the month after that. For example, July activity is billed by August 15th and the stamping fee payment is due by September 30th. the SLAI is required to inform the Department of Insurance of any member whose stamping fees are 60 days delinquent.
• Semi-Annual Surplus Line Tax Statement. Mailed to the members twice per year. See Chapter 7 - Tax Forms and Payment for more information.
• Annual Fire Marshal Tax Statement. Mailed to members once per year. See Chapter 7 - Tax Forms and Payment for more information.

Reconciliation

It is important to reconcile the monthly Activity reports to your records promptly to make sure the data is accurate and the proper premium and associated tax liabilities have been recorded. Do not wait until tax payment time, when there is little or no time left to make corrections, to review this data.

When filing a policy extension, a renewal certificate, or an annual installment for a multi-year policy, be sure to choose "Policy" as the filing type in the "Filing Type" field of the EFS. This will ensure that all taxes and fees are calculated properly, and that certain return premium endorsements are not rejected. Note that in the Surplus Line Tax, Fire Marshal Tax and Stamping Fee sections of the Procedures Manual, special treatment with regard to these items is required. By choosing "Policy" as the "Filing Type" in the EFS, the system will automatically make the proper calculations for taxes and fees.

The easiest way to enter these items in the EFS is to lookup the original filing on the Your SLAI Filings page and click Renew. That way most of the information will be copied to the Enter a Filing page for you.

For a policy extension, enter it as if it was a new policy (with the same policy number). The effective date should be the first day of the extended period and the term should be the length of the extended period. For example, if the original policy was effective 09/01/2021 for 12 months, and an extension was issued for an additional 3 months, the extension would be entered with an effective date of 09/01/2022 and the term would be 3 months.

For a renewal certificate, enter it as if it was a new policy (with the same policy number). The effective date should be the first day of the renewal period and the term should be the length of the renewal period. For example, if the original policy was effective 05/01/2022 for 12 months, and an renewal was issued for 12 months, the renewal would be entered with an effective date of 05/01/2023 and the term would be 12 months.

For an annual installment of a multi-year policy, enter it as if it was a new policy (with the same policy number). The effective date should be the anniversary of the original policy effective date and the term should be 12 months. For example, if the original 5 year policy was effective 03/15/2022, the first annual installment should be entered with an effective date of 03/15/2023 and a term of 12 months. The second annual installment should be entered with an effective date of 03/15/2024 and a term of 12 months.

When you have acquired an account midterm through a Broker of Record letter ("BOR"), or an account has otherwise transferred midterm from one membership to another, there are a couple of special considerations and requirements.

In these situations, usually the original broker has already filed the policy under their membership. Because our system has internal "firewalls" around each member's data, when you are logged in under your membership, there is no way the system can access data from any other member during that session. This can cause problems when you go to file endorsements.

When an endorsement is filed, our system looks up the policy filing record to determine the underlying policy effective date. That date is then used to look up the proper tax rates and stamping fee rates. If the endorsement is being filed under your membership but the policy was filed under another member, the system will not find the policy. This can result in taxes and stamping fees being computed incorrectly.

To minimize the impact of this problem, when you acquire an account via BOR, you must do the following:

• file the policy under your membership;
• it should be filed as a "policy" using the actual policy effective date and all the actual policy information (except the premium amount);
• it should be filed with zero premium; and
• "BOR" or "TRANSFER" (as appropriate) should be entered in one of the User Defined Fields.

By following this procedure, the taxes and stamping fees will be calculated properly on all endorsements entered for this account that your firm acquired midterm via a Broker of Record letter or other type of transfer. It will also help reduce (but not eliminate) issues with return premium endorsements.

Return Premium Endorsement Considerations
There will likely still be instances, when trying to file a return premium endorsement, that the system will reject the filing because there is not enough positive (additional) premium filed for the policy under your membershp to support the negative (return) premium you are trying to file. This is because the original policy premium dollars were filed under a different membership. In these cases, you will need to contact our EFS help desk and they will, after proper review, provide you with an override so the system will accept the filing.

Historically, Lloyd's was able to write insurance in Illinois on both a licensed basis and a surplus line basis.  However, they have announced that they will be relinquishing their Illinois license
effective July 1, 2021.

Before July 1, 2021, Lloyd's Illinois office offered guidance on licensed Lloyd's issues and filed policy forms and rates, on behalf of Lloyd's Underwriters, with the Illinois Department of Insurance.  Provided the surplus line producer performed any necessary diligent effort to procure coverage from licensed insurers, underwriters could also write business on a surplus lines basis.  As of July 1, 2021, however, Lloyd's will only write on a surplus line basis in Illinois.

For more information, you can review general information about Lloyd's in Illinois and the Central Region on the Lloyd's website, which also has some contact information. You may also want to visit the Association of Lloyd's Brokers website.

The NRRA has changed the landscape for multi-state policies.

When filing a policy that covers risks in multiple states, first determine the home state of the insured.  "Home State" is defined in the Illinois surplus line law and the federal Nonadmitted and Reinsurance Reform Act (NRRA).  You can find a helpful flowchart here.

Once you have determined the home state of the insured, the surplus line policy is filed with (and taxes paid to) that state regardless of whether it is a single-state or multi-state risk.

When filing policies covering risks in multiple states, remember to follow the rules prescribed by the home state of the insured as that term is defined in the law.

The Illinois Department of Insurance has recently indicated that these policies are not subject to Illinois surplus line law, surplus line tax, fire marshal tax, stamping fee or any filing requirements.  If you have policies for which taxes were collected but have not yet been paid to the state, contact David Ocasek.