Qualifying as an Exempt Commercial Purchaser under the NRRA

The Nonadmitted & Reinsurance Reform Act (NRRA) created a uniform mechanism for certain commercial purchasers, known as exempt commercial purchasers (ECP), to directly access the surplus lines market without first conducting a “diligent search.”

Currently if an insurance buyer wants to purchase surplus lines coverage, it is generally required to diligently search for the same type of coverage in the admitted market first. Only after the admitted carriers refuse to write the coverage would a purchaser be able to buy pursuant to the surplus lines law. While states have similar exemptions, the eligibility requirements vary by state.

However, the NRRA does not preclude the states from having more liberal exemptions from the diligent search requirements, as some states already do, including state-specific export lists and industrial insured exemptions.

Organizations that want to pursue ECP status and forego the diligent search requirements, must receive the following disclosure and then provide written consent to their broker to proceed in the nonadmitted insurance market:

Assuming that the surplus lines insurer is otherwise qualified, a placement could be made with that insurer regardless of whether or not there was coverage available with admitted (licensed) insurers that may provide greater protection and regulatory oversight.

To qualify as an ECP organizations must meet all of the following criteria:

  •  Retain a qualified risk manager to negotiate insurance coverage;
  • Pay aggregate nationwide commercial property and casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months; and
  • Meet at least one of the following criteria:

 

a.  The insured has a net worth in excess of $20,000,000;
b.  The company generates annual revenues in excess of $50,000,000;
c.  The company employs more than 500 full-time or full-time equivalent employees per individual insured;
d.  The insured is a member of an affiliated group employing more than 1,000 employees in the aggregate;
e.  The insured is a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30,000,000; or
f.  The insured is a municipality with a population in excess of 50,000 persons.

 

Who is a Qualified Risk Manager?

One is considered a "qualified risk manager" under the NRAA if he/she meet all three (3) of the following requirements:

  • Be an employee of, or a third party consultant retained by, a commercial policyholder; 
  • Provide skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance; and 
  • Have EITHER a bachelor’s degree or higher from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a state insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management; and three (3) years of experience in risk financing, claims administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance. OR one of the designations listed below:

 

  1. CPCU — Chartered Property and Casualty Underwriter issued by the American Institute for CPCU/Insurance Institute of America (AICPCU); 
  2. ARM — Associate in Risk Management issued AICPCU;
  3. CRM — Certified Risk Manager issued by the National Alliance for Insurance Education and Research
  4. RF — RIMS Fellow issued by the Global Risk Management Institute; or
  5. Any other designation, certification, or license determined by a State insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management.

OR seven (7) years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; and any 1 of the designations specified in the box above (items numbered 1-5).

OR at least ten (10) years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance.

OR a graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by a state insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management.