Placing business in the non-admitted market typically requires a diligent search for an admitted carrier as a prerequisite. There are a few exceptions to this requirement, however. Firstly, state regulators often maintain an Export List. Insurance coverages appearing on this list are exempt from the diligent search requirement. Secondly, the Non-Admitted and Reinsurance Reform Act (NRRA) makes provision for the independent procurement of insurance coverage. The final exception is the Commercial Purchaser Exemption.
This exemption allows an insured to voluntarily bypass the diligent search requirement. The broker/producer must disclose to the client that insurance may or may not be available from the admitted market and that the admitted market involves greater regulatory oversight and offers greater legal protections for insureds. The exempt commercial purchaser (ECP) then must request (usually in writing) that the broker obtain insurance for them from a non-admitted insurer.
Who Can Be an ECP?
The Non-Admitted and Reinsurance Reform Act (NRRA) outlines very specific criteria for who can qualify for the commercial purchaser exemption:
- They must employ or retain a qualified risk manager to negotiate insurance coverage AND
- They must have paid aggregate nationwide commercial property and casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months.
The insured must also meet at least one of the following criteria:
- Possess a net worth in excess of $20,000,000
- Generate annual revenues in excess of $50,000,000
- Employ more than 500 full-time or full-time equivalent employees per individual insured or be a member of an affiliated group employing more than 1,000 employees in the aggregate.
- Be a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30,000,000, OR
- Be a municipality with a population in excess of 50,000 persons.
Be aware that these dollar amounts continue to be adjusted to reflect economic cycles, based on data provided by the Department of Labor’s Consumer Price Index for All Urban Consumers. Always check with the state’s Department of Insurance to determine the current amounts.
The Responsibilities of the Broker and ECP
Most states have adopted the NRRA criteria as the basis for their own definitions of an exempt commercial purchaser. The burden is on the client to prove that they qualify as an ECP. Additionally, most brokers require clients to confirm annually that they still meet the standards for qualifying as an ECP.
Obviously, your typical consumer seeking to place a risk in the non-admitted market won’t qualify as an exempt commercial purchaser. But for those who do, it can be an excellent option for obtaining exactly the coverage wanted.