What are surplus lines taxes and filings?

Under the Nonadmitted and Reinsurance Reform Act (NRRA), part of the Dodd-Frank Act of 2010, the insured's home state has sole authority to regulate and tax a surplus lines placement. The surplus lines broker is the directly regulated party. According to WSIA, its responsibilities include confirming the insurer is eligible, filing diligent search affidavits where required, keeping transaction records, collecting and remitting premium taxes, and reporting the transaction to the home state.

Some states use a surplus lines stamping or service office that receives broker filings, and some charge a stamping fee on top of the state tax. Rates and procedures differ by state, so check the home state's insurance department or stamping office for current requirements.

In a wholesale placement, the wholesaler is usually the surplus lines licensee, so handling filings and taxes cleanly is part of the service retail producers expect. A wholesaler that makes compliance invisible to the retail producer is easier to work with.

For retail producers: the taxes and fees on a surplus lines quote are part of what your client pays, so make sure they are shown clearly when you present the quote.