With new generations entering the insurance profession and the rise of the insurtechs (that sounds like a sci-fi movie title itself), lots of people are struggling to master industry jargon. One set of terms, used to describe different types of insurers, causes more than its share of confusion: domestic, foreign and alien carriers. Alien carriers? Where is this underwriting being done, Mars? (Although … that might explain the convoluted language in some policies.)
Seriously, though, these terms aren’t a complicated as they might seem. It all comes down to where the insurance company is domiciled. In case that’s an unfamiliar term, domicile refers to the state where a business entity files its Articles of Incorporation/Formation with the Secretary of State’s Office.
So with that in mind, let’s take a look at each of the different categories and some of the unique compliance tasks involved.
Domestic carriers are domiciled in the state where they plan to underwrite policies. They go through a rigorous review process with the insurance department to become admitted insurers. Depending on the state, this process may be referred to as licensing or registration. Either way, it usually involves completing the NAIC Uniform Certificate of Authority Application (UCAA) and one or more state-specific forms. The insurer must list what type(s) of insurance products they will offer and provide written statements and supporting documents to explain their business structure and operational plan. Company executives must submit biographical affidavits and often fingerprints.
Once a domestic carrier is admitted, it will need to provide the DOI with information about its financial soundness on a regular basis. State regulators also must approve product types, policy language, premium schedules, etc.
While we’re on the subject of domestic carriers, let’s talk about a relatively new type of domestic entity, the domestic surplus lines insurer (DSLI). Traditionally, an insurer wanting to operate in the surplus lines market first registered as an admitted carrier in its domicile state. It could then apply for eligibility as a foreign non-admitted carrier in other states. This model, however, required the insurer to maintain two separate operations; co-mingling funds between the admitted and non-admitted sides of the business was a BIG no-no.
To simplify things, in 1998, Illinois became the first state to allow DSLIs. Since then, a total of 21 states have passed similar legislation. According to the 2019 Excess and Surplus Lines Laws in the United States report from Locke Lord, there are now over 70 domestic surplus lines insurers, most of them domiciled in Illinois and Delaware.
As I explained in a recent article about insurance agencies, the term foreign is used to describe any entity that transacts business in a particular state while being domiciled in a different state. For example, if your insurance company is domiciled in New York, but also underwrites policies in Pennsylvania, you would be a foreign carrier in the Keystone State.
The licensing/registration process for foreign carriers is fairly similar to the one for becoming a domestic carrier, but the insurer must also prove that it is licensed/registered in its domicile state and provide information about their regulatory history. The process is also slightly different for insurers underwriting standard and surplus lines policies. Foreign carriers writing standard coverages apply to become admitted insurers, while those underwriting surplus lines policies request they be added to the state’s list of eligible non-admitted insurers.
Finally, we come to the alien carriers. These are insurance companies domiciled outside the United States and its territories and possessions. Alien carriers undergo the same process as foreign carriers, but typically have to provide additional proof of financial stability. This often involves maintaining a higher equity fund amount and establishing a U.S. trust fund for a further amount.
As with foreign carriers, regulators make a distinction between insurers writing in the admitted and non-admitted markets. Alien carriers licensed/registered in the United States are subject to all relevant U.S. laws and regulations.
Many states don’t maintain their own lists of alien insurers but instead rely on the Quarterly Listing of Alien Insurers compiled by the NAIC.
Finding an Approved Carrier
As you see, while the terms referring to the various insurer types aren’t exactly intuitive, it’s easy to understand the differences between the three types. Most insurance departments maintain a registry of insurance companies approved to accept business in their state on their DOI website. In some states, domestic, foreign and alien carriers appear on separate lists. In others, all insurers appear on the same list, but clearly identified by their point of origin. These lists are available to insurance professionals and consumers alike.