The Surplus Lines Insurance Cycle
Surplus lines insurance is a special type of insurance that covers unique risks. It fills a gap in the standard market by covering things that most companies can’t or won’t insure.
Although it’s best to buy insurance from a company that TDI licenses, you might not be able to find the insurance you need from a Texas-licensed company. That’s where surplus lines companies come in. How is the process conducted from beginning to end? Here at SLTX, we are here to shed some light and information on the surplus lines insurance processes.
Who is involved when purchasing surplus insurance?
- Individual or company who needs high risk or unusual coverage in the state of Texas.
Property & Casualty (P&C) Agent
- Agent who holds a P&C license to transact business in their state. In this case, the state of Texas.
Surplus Lines (SL) Agent
- Agent who holds a Surplus Lines license in Texas.
The SL Insurer
Three types of insurers can provide SL insurance:
- Domestic – Based in Texas
- Foreign – Based in the US, but not in Texas.
- Alien – Based outside of the US.
- We confirm SL Agents are compliant with Texas statutes, determine that SL insurers are eligible to write business in Texas, educate agents, and collects data for stakeholders (primarily State agencies).
How does the SL insurance cycle work?
- As stated above, this individual or company needs coverage for high risk or unusual items. He or she will need to speak with an insurance agent in order to purchase needed coverage. The insured will then pay premium to the Surplus Lines Agent as well as receive a copy of the policy.
The P&C Agent
- An agent must make a diligent effort to place coverage within the admitted market. If the coverage is not avaliable within the admitted market, the agent will then find a Surplus Lines agent to place the coverage within the SL market.
- The SL agent will contact Surplus Lines insurers in order to find coverage for the insured.
The SL Insurer
- Once the SL agent speaks with the SL insurer, the insurer underwrites the risk of the insured. This allows the insured to obtain the proper type and amount of coverage for the risk.
- The SL agent files a copy of the policy with SLTX and receives a separate invoice for the stamping fee. Additionally, the agent must also pay their surplus lines taxes to the Texas Comptroller.
- In addition to receiving a copy of the policy, SLTX maintains the list of insurers eligible to write SL insurance coverage in Texas. The stamping office also educates agents when necessary and reports to the Texas Department of Insurance and the Texas Comptroller.
Once the policy has been filed, endorsements, extensions, and cancellations must be submitted. Policies may be renewed annually by the insurer as long as the insured finds continuous coverage necessary. For more information on Surplus Lines policy processes, please refer to the Texas Administrative Code, Texas Insurance Code, or the Texas Department of Insurance. In addition to this article, SLTX has created a visual infographic for additional reference. It can be found here or on the Infographics page on our website.