Policyholder Notices, Disclosures, and Unfair Trade Practices
Required Notices
Alaska requires the surplus lines broker to give the insured written notice that the coverage is placed with an insurer not authorized in Alaska, that the insurer is not subject to the state's guaranty fund, and that the policy is not protected by the guaranty association. The notice must be delivered before or at the time the policy is issued. Some placements (exempt commercial purchasers) may be subject to modified notice rules.
Disclosures
Disclosures must identify the insurer, the coverage, and the fact that the insurer is not admitted. The broker must also disclose any compensation it receives from the insurer (commissions, fees) when required by regulation. Failure to disclose is an unfair trade practice.
Unfair Trade Practices
AS 21.36 prohibits misrepresentation, false advertising, unfair claims settlement, twisting, rebating, and failure to disclose material facts. In the surplus lines context, the most common violations are: telling an insured the carrier is "admitted" when it is not, concealing the lack of guaranty fund protection, and misrepresenting the scope of the diligent search.
Traps
- Assuming the notice can be delivered after the policy is issued - it must precede or accompany issuance.
- Forgetting that the guaranty fund disclaimer is mandatory even for sophisticated buyers (unless exempted).
- Confusing rebating (illegal) with permissible fee disclosure.
Worked Example
A broker places coverage and emails the guaranty fund disclaimer two weeks after the policy is delivered. That is a violation; the notice had to accompany the policy.