Question

In: Finance

Which one of the following general statements about surplus lines insurance is true? Select one: a....

Which one of the following general statements about surplus lines insurance is true?

Select one:

a. State guaranty funds do not cover the policyholders of surplus lines insurers

b. Surplus lines insurers are subject to state form and rate filing regulations

c. All non-admitted insurers are surplus lines insurers

d. Admitted insurance companies must write insurance in the surplus lines market

Solutions

Expert Solution

Which one of the following general statements about surplus lines insurance is true?

Ans : a. State guaranty funds do not cover the policyholders of surplus lines insurers

Explanation:

In united states, Insurer or Carier are licenced on State to State basis. These liscenced insurer are regulated by the Department of Insurance or similar regulating body in each state in which such insurer is located. These Insurer are required to contribute to a state fund also known as gratuity fund, These funds is used to pay to the claims of the policyholder when insurer suffers bankruptcy.

Some times these liscenced insurer are not ready to accept risk in certain cases of client that may be bacause the client did not meet their internally established guideline. Here the risk may be too big or unsual or substandard then in this circumstance a specially liscence insurer or producer would get involved. Their special surplus line liscence would allow them to accept greater risk and to procure a policy that is not liscenced. Since these insurer are not generally liscenced by the state. They are not strictly regulated by the regulating body. Hence they enjoy flexibility in designing and pricing their policy. But the main point of consideration is that since they are not strictly regulated, they do not have guarantee protection. Which means that if Surplus line insurer goes insolvent or Bankrupt. Its policyholders will suffer as the State gurantee fund would not be utilised for the payment of their claim unlike general liscenced Insurer.


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