Question

Before obtaining insurance in the surplus lines market for an insurance customer, surplus lines intermediaries must do which one of the following?

Select one:

a. Conduct a diligent search for admitted lines insurance and determine it is not available

b. Obtain regulatory approval

c. Review the insurance application and determine that surplus lines insurance is the best choice

d. Receive the recommendation of three customers that surplus lines insurance is the best insurance available

Answer 1

Surplus lines insurers can cover for financial risks that are too high for regular or admitted lines insurance companies. Surplus lines insurers have lenient regulations regarding the amount and type of risk coverage they can provide to it's customer. However, in surplus line insurance, the customer (policyholder) also has a risk that if the surplus lines insurance company goes bankrupt, the customer cannot get it's claim. This is unlike the admitted lines insurance. In admitted lines insurance, even if the insurance company goes bankrupt, the policyholder can still receive the claim from a guarantee fund to which all admitted lines insurance companies contribute.

The surplus lines insurance company need not ensure whether a particular insurance customer can be served by admitted lines insurance or not. The customer can decide whether they wish to go for surplus lines insurance or admitted lines insurance. However, it is required by the intermediaries to obtain regulatory approval to offer surplus lines insurance. Therefore, the answer is b