Surplus lines insurance is coverage that is unavailable through admitted carriers but can legally be placed with eligible non-admitted companies. These surplus lines companies may be located in other states or countries.
Your agent may work with a licensed surplus lines broker in securing your policy. Only licensed surplus lines brokers can place coverage with these insurers. A broker must pass a special examination to qualify for a surplus lines license. By law, a broker can place a risk with a surplus lines company only after making a “diligent effort” to find an admitted carrier to issue the policy. If you are not satisfied with the results of the search, keep shopping for a licensed company, perhaps with another agent.
The surplus lines broker must notify the insured in writing that:
- The insurer with which the coverage has been placed is not licensed by this state and is not subject to its supervision; and
- In the event of the insolvency of the surplus lines insurer, losses will not be paid by any State insurance guaranty or solvency fund.
Surplus lines insurers are unlicensed. Their policies are regulated by state laws which require surplus lines coverage to be obtained by specially licensed surplus lines agents or brokers who are authorized to transact business with unlicensed (also called “non-admitted”) insurers that meet financial and other criteria. These insurers are known as surplus lines insurers.
Companies attempting to become eligible surplus lines insurers must have at least $15 million in combined capital and surplus to conduct business in North Carolina. (Capital and surplus are a company’s financial cushion against unexpected claims.)
In addition, an alien insurer – one based in a foreign country – must have a trust fund of at least $5.4 million in either a national bank or a member of the Federal Reserve System to protect its U.S. policyholders.
Insurance Policies Written in the Surplus Lines Market
Surplus lines business consists primarily of property and casualty coverages such as commercial general liability insurance, fire insurance, mobile home policies, automobile physical damage coverage, and medical malpractice insurance.
Most surplus lines policies are sold to businesses. A small percentage of the surplus lines market consists of individual consumers who cannot secure residential property or automobile physical damage coverage with an admitted insurer.
The policies of surplus lines companies are not reviewed or approved by the NCDOI. A surplus lines company can modify, and often does modify, standard policy language to decrease or increase coverage depending upon the desire of the insured and the extent to which the company is willing to offer coverage.
There is no protection for surplus lines policies. The Insurance Guaranty Association only covers policies of licensed insurers. This means that if the surplus lines insurer has financial difficulties, claims against your policy might go unpaid.