CHAPTER 334
FORMERLY
HOUSE BILL NO 459
AN ACT TO AMEND TITLE 18, DELAWARE CODE, RELATING TO STANDARDS FOR BUSINESS TRANSACTED WITH PRODUCER CONTROLLED PROPERTY/CASUALTY INSURER ACT.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:
Section 1. Amend Title 18 Del. C. by adding a new Chapter 16A as follows:
"Chapter 16A, Business Transacted with Producer Controlled Insurer Act. §1650. Definitions.
(a) "Accredited State" means a state in which the insurance department or regulatory agency has qualified as meeting the minimum financial regulatory standards promulgated and established from time to time by the National Association of Insurance Commissioners (NAIC).
(b) "Control" or "Controlled" has the meaning ascribed in Chapter 50.
(c) "Controlled Insurer" means a licensed insurer which is controlled, directly or indirectly, by a producer.
(d) "Controlling Producer" means a producer who, directly or indirectly, controls an insurer.
(e) "Licensed Insurer" or "Insurer" means any person, firm, association or corporation duly licensed to transact a property/casualty insurance business in this state. The following, inter alia, are not licensed insurers for the purposes of this Act:
All risk retention groups as defined in the Superfund Amendments Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (1986) and the Risk Retention Act, 15 U.S.C. Section 3901 et seq. (1982 & Supp. 1986) and Chapter 80;
All residual market pools and joint underwriting authorities or associations; and
All captive insurers (for the purposes of this Act, captive insurers are insurance companies owned by another organization whose exclusive purpose is to insure risks of the parent organization and affiliated companies or, in the case of groups and associations, insurance organizations owned by the insureds whose exclusive purpose is to insure risks to member organizations and/or group members and their affiliates).
(f) "Producer" means an insurance broker or brokers or any other person, firm, association or corporation, when, for any compensation, commission or other thing of value, such person, firm, association or corporation acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract on behalf of an insured other than the person, firm, association or corporation.
§1651. Applicability.
This Act shall apply to licensed insurers as defined in §1650, whether domiciled in this state or domiciled in a state that is not an accredited state having in effect a substantially similar law. All provisions of the Insurance Holding Company Act, to the extent they are not superseded by this Act, shall continue to apply to all parties within holding company systems subject to this Act.
§1652. Minimum Standards. (a) Applicability of section.
The provisions of this Section shall apply if, in any calendar year, the aggregate amount of gross written premium on business placed with a controlled insurer by a controlling producer is equal to or greater than five percent (5%) of the admitted assets of the controlled insurer, as reported in the controlled insurers' quarterly statement filed as of September 30 of the prior year.
Nothwithstanding Paragraph (1) of this subsection, the provisions of this section shall not apply if:
a. The controlling producer:
(I) Places insurance only with the controlled insurer, or only with the controlled insurer and a member or members of the controlled insurer's holding company system, or the controlled insurer's parent, affiliate or subsidiary and receives no compensation based upon the amount of premiums written in connection with such insurance; and
Accepts insurance placements only from non-affiliated subproducers, and not directly from insureds; and
The controlled insurer, except for insurance business written through a residual market facility such as Assigned Risk Plan, accepts insurance business only from a controlling producer, a producer controlled by the controlled insurer, or a producer that is a subsidiary of the controlled insurer.
(b) Required contract provisions. A controlled insurer shall not accept business from a controlling producer and a controlling producer shall not place business with a controlled insurer unless there is a written contract between the controlling producer and the insurer specifying the responsibilities of each party, which contract has been approved by the board of directors of the insurer and contains the following minimum provisions:
The controlled insurer may terminate the contract for cause, upon written notice to the controlling producer. The controlled insurer
shall suspend the authority of the controlling producer to write business during the pendency of any dispute regarding the cause for the termination; and
The controlling producer shall render accounts to the controlled insurer detailing all material transactions, including information necessary to support all commissions, charges and other fees received by, or owing to, the controlling producer; and
The controlling producer shall remit all funds due under the terms of the contract to the controlled insurer on at least a monthly basis. The due date shall be fixed so that premiums or installments thereof collected shall be remitted no later than ninety (90) days after the effective date of any policy placed with the controlled insurer under this contract; and
All funds collected for the controlled insurer's account shall be held by the controlling producer in a fiduciary capacity, in one or more appropriately identified bank accounts in banks that are members of the Federal Reserve System, in accordance with the provisions of the insurance law as applicable. (Funds of a controlling producer not required to be licensed in this state shall be maintained in compliance with the requirements of the controlling producer's domiciliary jurisdiction); and
The controlling producer shall maintain separately identifiable records of business written for the controlled insurer; and
The contract shall not be assigned in whole or in part by the controlling producer; and
The controlled insurer shall provide the controlling producer with its underwriting standards, rules and procedures, manuals setting forth the rates to be charged, and the conditions for the acceptance or rejection of risks. The controlling producer shall adhere to the
standards, rules, procedures, rates and conditions. The standards,
rules, procedures, rates and conditions shall be the same as those applicable to comparable business placed with the controlled insurer by a producer other than the controlling producer; and
The rates and terms of the controlling producer's commissioners, charges or other fees and the purposes for those charges or fees.
The rates of the commissions, charges and other fees shall be no greater than those applicable to comparable business placed with the controlled insurer by producers other than controlling producers. For purposes of this paragraph and Paragraph (7) of this subsection, examples of "comparable business" includes the same lines of insurance, same kinds of insurance, same kinds of risks, similar policy limits, and similar quality of business; and
If the contract provides that the controlling producer, on insurance business placed with the insurer, is to be compensated contingent upon the insurer's profits on that business, then such compensation shall not be determined and paid until at least five (5) years after the premiums on liability insurance are earned and at least one (1) year after the premiums are earned on any other insurance. In no event shall the commissions be paid until the
adequacy of the controlled insurer's reserves on remaining claims has been independently verified pursuant to Subsection (d)(1) of this section; and
A limit on the controlling producer's writings in relation to the controlled insurer's surplus and total writings. The insurer may
establish a different limit for each line or sub—line of business. The controlled insurer shall notify the controlling producer when the applicable limit is approached and shall not accept business from the controlling producer if the limit is reached. The controlling
producer shall not place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached; and
The controlling producer may negotiate but shall not bind reinsurance on behalf of the controlled insurer on business the controlling producer places with the controlled insurer, except that the controlling producer may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurer with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.
Audit Committee. Every controlled insurer shall have an Audit
Committee of the Board of Directors composed of independent directors. The Audit Committee shall annually meet with management, the insurer's independent certified public accountants, and an independent casualty actuary or other independent loss reserve specialist acceptable to the Commissioner to review the adequacy of the insurer's loss reserves.
Reporting requirements.
In addition to any other required loss reserve certification, the controlled insurer shall annually, on April 1 of each year, file with the Commissioner an opinion of an independent casualty actuary or such other independent loss reserve specialist acceptable to the
Commissioner reporting loss ratios for each line of business written and attesting to the adequacy of loss reserves established for losses incurred and outstanding as of year—end (including incurred by not reported) on business placed by the producer; and
The controlled insurer shall annually report to the Commissioner the amount of commissioners paid to the producer, the percentage such amount represents of the net premiums written and comparable amounts and percentage paid to noncontrolling producers for placements of the same kinds of insurance.
§1653. Disclosure.
The producer, prior to the effective date of the policy, shall deliver written notice to the prospective insured disclosing the relationship between he producer and the controlled insurer; except that, if the business is placed through a subproducer who is not a controlling producer, the controlling producer shall retain in his records a signed commitment from the subproducer that the subproducer is aware of the relationship between the insurer and the producer and that the subproducer has or will notify the insured.
§1654. Penalties
(1) If the Commissioner believes that the controlling producer or any other person has not materially complied with this Act, or any regulation or order promulgated hereunder, after notice and
opportunity to be heard, the Commissioner may order the controlling producer to cease placing business with the controlled insurer; and
(2) If it is found that because of such material non—compliance that the controlled insurer or any policyholder thereof has suffered any loss or damage, the Commissioner may maintain a civil action or intervene in an action brought by or on behalf of the insurer or policyholder for recovery of compensatory damages for the benefit of the insurer or policyholder or other appropriate relief.
If an order for liquidation or rehabilitation of the controlled insurer
has been entered pursuant to Chapter 59, and the receiver appointed under that order believes that the controlling producer or any other person has not materially complied with this Act, or any regulation or order promulgated hereunder, and the insurer suffered any loss or damage therefrom, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.
Nothing contained in this section shall affect the right of the Commissioner to impose any other penalties provided for in the Insurance Law.
Nothing contained in this section is intended to or shall in any manner alter or affect the rights of policyholders, claimants, • creditors or other third parties.
§1655. Effective Date.
This Act shall take effect on June 30, 1992. Controlled insurers and
controlling producers who are not in compliance with §1652 of this Act on its effective date shall have sixty (60) days to come into compliance and shall comply with §1653 beginning with all policies written or renewed on or after August 30, 1992.
Approved July 8, 1992