Zero reports are one of the least understood compliance requirements for the non-admitted market. Currently, about 30 states require these filings. Often, it’s an annual report; but some states require monthly, quarterly, or semi-annual reports. Some jurisdictions require an annual report in addition to reports filed throughout the year. There are also a few states that require separate zero reports for premium taxes and stamping fees.
This compliance requirement kicks in as soon as the state insurance department issues a surplus lines license. That makes having a well-designed licensing strategy particularly important. You don’t want to waste time and money on compliance for licenses that aren’t generating revenue!
Filing Zero Reports
At this point, you may be thinking, Boy, that’s a lot of work when we’re not even writing business! That’s true, in a way. Fortunately, zero reports typically use the same forms and procedures required to report surplus lines business. You simply enter $0 as the premium amount. Compliance deadlines are also the same.
Another important thing to keep in mind about zero reports is that you may need to file them for each licensee. For example, let’s say you have an individual and an agency, both licensed for surplus lines. All policies are filed under the agency’s license number. In some states, you would need to submit zero reports for the individual as well as the premium tax reports for the agency. If no policies are written at all, zero reports would be required for the individual and the agency. (In other states, zero reports are required for only the agency or the individual.)
Regulators Take Zero Reports Seriously
Just because there’s no premium involved or taxes owed, don’t make the mistake of treating zero reports lightly. State regulators can impose the same late fees, fines, and other penalties for a past-due zero report as they can for any other delinquent tax filing. I’ve seen companies rack up fines of hundreds or even thousands of dollars.
This requirement is also why you can’t just let a surplus lines license lapse (automatically expire) when you don’t need it anymore. It’s always a good idea to formally surrender a license you no longer use; but for surplus lines licenses, it’s essential! As long as the license is active, state regulators expect those reports. If you no longer want to place business in the non-admitted market in a particular state, first check with the state regulator to see if there are any past-due reports. Resolve any issues, and then inform the insurance department that you want to surrender your surplus lines license.
Usually, surrendering a license is a quick and easy process. Be careful, though, if you start the process too near the end of a reporting period. Even one day with an active license in the following period means you need to submit a zero report. Always check to be sure the DOI completes the license termination process. You can do this by checking on the insurance department’s website or by requesting a Producer Database Report from the NIPR.
Be the Zero Hero
Surplus lines compliance can be challenging. But by understanding the need for zero reports and having a strategy to fulfill this requirement, you can protect your agency or brokerage’s regulatory reputation and maximize the ROI for your surplus lines licenses. That makes you a Zero Hero!
Need help finding out if you’re past due on zero reports or any surplus lines compliance filings? ILSA can help with our Surplus Lines Compliance Review. Click here to learn more or schedule a review for your insurance business.