INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Producer Licensing

Requirements for Managing General Agents

Proposed Amendment: N.J.A.C. 11:17-6.2 and 6.3

Authorized By: Donald Bryan, Acting Commissioner for Insurance,

Department of Banking and Insurance.

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:22C-1 et seq.

Calendar Reference: See summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2001-433

Submit comments by January 18, 2002 to:

Karen Garfing, Assistant Commissioner

Regulatory Affairs

Department of Banking and Insurance

20 West State Street

P.O. Box 325

Trenton, New Jersey 08625-0325

Fax: (609) 292 -0896

Email: Legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

The Department of Banking and Insurance ("Department") is proposing amendments to N.J.A.C. 11:17-6.3 which establishes requirements for becoming a managing general agent ("MGA"). The Department is proposing amendments to this rule that will reduce the amount of the surety bond that MGAís shall acquire and maintain for the protection of the insurer contracting with the MGA. Upon a review of its rules, the Department has determined that it can reduce the amount of the bond and still provide adequate protection to the insurer. Currently, the Department's rule requires that the MGA's bond shall be in the amount of $100,000 or 25 percent, up to $10,000,000 of the direct premium written by the insurer for the previous calendar year that is attributable to the managing general agent, whichever is greater. The Department's proposed amendment reduces the required surety bond amount to 10 percent of the direct premium written, but the bond amount is not to be less than $100,000, nor more than $500,000. The Department is also amending the bond requirement amounts for errors and omissions insurance policy limits. The Departmentís proposed amendments set these limits at $100,000; or 10 percent, up to $500,000 of the direct premium written by an insurer for the previous calendar year that is attributable to the MGA, whichever is greater.

The Department is also deleting the reference to N.J.A.C. 11:3-17 in the definition of "producer." This is an incorrect reference because N.J.A.C. 11:3-17 refers to Rate Intervenor Rules and not Producer Licensing requirements.

This rule proposal provides for a comment period of 60 days, and therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

Social Impact

The Department believes that these amendments will have a positive social impact on insurers and MGAs. MGAs have the authority to act on an insurer's behalf with respect to certain lines of business, including the making of underwriting decisions and claim settlement authority. The Department's proposed amendments to N.J.A.C. 11:17-6.3, which reduce the surety bond and errors and omissions requirements, that these persons must meet in order to be licensed as an MGA.

Economic Impact

The Department believes that no adverse economic impact should be experienced by insurers as a result of the proposed amendments. The Department believes that as a result of the proposed amendments, some insurers may be able to expand their business in New Jersey due to the reduced financial requirements being placed on MGAs. The Department does not anticipate any additional costs to MGAs or insurers as a result of these amendments, nor are there any additional record maintenance requirements as a result of these amendments.

The proposed amendments reduce the required surety bond and errors and omissions amounts to 10 percent of the direct premiums written by the insurer but in no event less than $100,000, or more than $500,000. As a result, the Departmentís proposed amendments reduce the financial bond requirements for becoming a MGA.

Federal Standards Statement

A Federal standards analysis is not required because the proposed amendments concern insurance and are not subject to any Federal standards or requirements.

Jobs Impact

The Department does not anticipate that any jobs may be generated or lost as a result of these amendments. The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed amendments together with their written comments on other aspects of this proposal.

Agriculture Industry Impact

The Department does not expect any agriculture industry impact from these proposed amendments.

Regulatory Flexibility Statement

The proposed amendments may apply to "small businesses" as that term is defined in the Regulatory Flexibility Act, N.J.S.A. 52:14b-16 et seq. To the extent that the proposed amendments apply to "small businesses," they will be firms, associations, or corporations that wish to be qualified as MGAs in this State. The Department's amendments reduce the amount of the surety bond required for a MGA to $100,000; or 10 percent of the direct premiums written, but not more than $500,000. The Departmentís amendment also applies to the requirements for errors and omissions policy limits. As the requirements placed on "small businesses" are being reduced and no additional requirements are being imposed, no regulatory flexibility analysis is required.

Full text of the proposal follow (additions indicated in boldface thus; deletions indicated in brackets [thus]):

11:17-6.2 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise:

. . .

"Producer" means a person licensed in accordance with N.J.S.A. 17:22A-1 et seq. [and N.J.A.C. 11:3-17.]

. . .

11:17-6.3 Requirements for MGA

(a) - (b) (No change.)

(c) All managing general agents shall acquire and maintain a surety bond for the protection of the insurer contracting with the managing general agent. The bond shall be in the amount of $100,000 or [25] 10 percent up to [$10,000,000] $500,000 of the direct premium written by the insurer for the previous calendar year that is attributable to the managing general agent, whichever is greater.

1. - 3. (No change.)

(d) All managing general agents shall acquire and maintain an errors and omissions insurance policy. The policy coverage limits shall be set at $100,000 or [25] 10 percent up to [$10,000,000] $500,000 of the direct premium written by an insurer for the previous calendar year that is attributable to the MGA, whichever is greater.

1. - 3. (No change.)

(e) (No change.)

 

 

 

DHT01-04/INOREGS