Most insurance coverage in Florida is provided by insurers “admitted” to provide coverage in the state, meaning those companies licensed to transact insurance in Florida. “Surplus lines” insurance refers to a category of insurance for which there is no market available through insurance carriers in the admitted market. Surplus lines insurance is intended to fill a gap–to provide access to insurance coverage for risks that admitted or “authorized” carriers refuse to insure and for which there would otherwise be no coverage:
There are three basic categories of surplus lines risks:
- specialty risks that have unusual underwriting characteristics or underwriting characteristics that admitted insurers view as undesirable;
- niche risks for which admitted carriers do not have a filed policy form or rate; and
- capacity risks, i.e., risks where an insured needs higher coverage limits than those that are available in the admitted market.1
Surplus lines insurers are regulated under the Surplus Lines Law. See Fla. Stat. § 626.913-626.937. The “Surplus Lines Law” provides that if certain insurance coverages cannot be obtained from authorized insurers, “such coverages, hereinafter designated ‘surplus lines,’ may be procured from unauthorized insurers.”.
Before an insurance agent can place insurance in the surplus lines market, the Surplus Lines Law provides that the agent must first make a diligent effort to place the risk with at least three authorized insurers. See Fla. Stat. §626.916. The retail insurance agent must prepare a “statement of diligent effort” to document efforts to place the risk with an authorized carrier before the agent submits the risk to an eligible surplus lines agent.
Surplus lines insurance carriers are relieved from most regulations contained in Chapter 627 of the Florida Insurance Code. Freedom from rate and form regulations allows the surplus lines industry to fill the gap in available insurance for Florida residents. Prospective insureds that find themselves in the surplus lines market should understand what this limited regulation means for them and the risk that they are insuring. It is important to be fully informed.
1Brief of the Office of Insurance Regulation in the case of CNL Hotels & Resorts, Inc. v. Twin City Fire Ins. Co., 2008 WL 3823898 (C.A. 11 (Fla.)).