What is Surplus Lines?
It is a type of specialty insurance that may be used to bridge a gap for consumers who have high risk, have a need for increased capacity, or are part of new and emerging markets. Surplus lines policies are obtained from insurance carriers when the desired coverage cannot be procured in the standard, or admitted, market.
Surplus lines carriers are not subject to the same state regulations as licensed insurers in the admitted market, but the companies must meet higher solvency requirements and submit to financial evaluations by the Surplus Lines Stamping Office of Texas (SLTX).
To obtain a surplus lines insurance policy, the consumer must work with a broker who is licensed in Texas. It is the broker’s responsibility to attempt to find coverage first in the admitted market before seeking coverage in the surplus lines market, unless the buyer meets certain exemption requirements. Generally, these brokers are producers in the retail industry who work with wholesale brokers to find the appropriate policy.
The wholesale broker files certain policy provisions with SLTX, and a stamping fee is collected. SLTX is funded by this stamping fee, which is an assessment imposed on each Texas surplus lines insurance policy issued through a broker.
While excess and surplus lines insurers are not included in the Texas Guaranty Fund, which will pay up to $300,000 per claim if the insurer fails, they are obligated to meet other stringent financial requirements to protect the consumer:
- Insurers domiciled in Texas, or domestic surplus lines insurers (DSLI), must maintain a minimum of $15 million in capital and surplus.
- Insurers based in the U.S. but outside of Texas, known as foreign insurers, must maintain a capital of $15 million.
- Insurers based outside the U.S., which are referred to as alien insurers, are required to maintain $45 million.
- Insurers in the admitted market must maintain only $5 million in net worth.