Surplus Lines Insurance
(April 2012)
When you buy insurance, you should buy from companies licensed to sell insurance in Texas. Licensed insurance companies do business in what is known as the “standard market” and must go through TDI’s rate and form review process. They are also required to contribute to the state guarantee fund that pays for losses when companies become insolvent or unable to pay claims.
However, there are times when an insurance company in the standard market is not willing to sell you a policy. For instance, you might have an art collection that’s too costly for most companies to cover, or you might not meet a Texas company’s underwriting guidelines.
Texas law allows some companies to insure risks that companies in the standard market are unwilling to insure. These companies are called “surplus lines” insurance companies. To legally sell insurance in Texas, a surplus lines company must be licensed in its home state or country and must register with TDI.
TDI does not regulate surplus lines companies. Surplus lines companies are not subject to the same rate and form regulations as companies in the standard market. Texas law also excludes surplus lines companies from the Texas Property and Casualty Insurance Guaranty Association. The guaranty association pays claims for member companies that become insolvent. This means that if the surplus lines company becomes insolvent, any claims you had could go unpaid.
Agents who sell surplus lines policies must have a Texas surplus lines insurance license. Agents must try to find a Texas-licensed company to sell you a policy before they sell you a policy with a surplus lines insurance company. If you’re not satisfied with an agent’s search, consider using another agent to find a Texas-licensed company.
Surplus lines insurance companies have higher premiums because they insure risks that Texas-licensed companies won’t accept.
Beware of Unauthorized Insurers
An unauthorized insurer is a company that is not legally licensed, eligible, or registered to sell insurance in Texas. Unauthorized insurance companies often claim to be licensed in another country and sometimes claim to be surplus lines companies.
Before you buy a surplus lines policy, verify that the company is an eligible surplus lines company and that the agent is licensed to sell surplus lines policies. You can verify a surplus lines insurance company’s eligibility and an agent’s license status by calling TDI’s toll-free Consumer Help Line or by using the Check Companies feature on our website
1-800-252-3439
463-6515 in Austin
www.tdi.texas.gov
Types of Surplus Lines Insurance
Property and Casualty
Most surplus lines insurance policies are property and casualty policies, such as commercial general liability insurance, fire insurance, mobile home policies, automobile physical damage coverage, and medical malpractice policies.
Worker’s Compensation
Surplus lines companies can’t write workers compensation insurance. State law requires companies selling workers’ compensation insurance to be licensed in Texas. If an employer buys insurance to cover its employees’ injuries through a surplus lines company or an unauthorized company, the employer loses immunity from lawsuits arising from workplace injuries. The employer also loses some key legal defenses, such as employee negligence.
Other Types
Surplus lines insurance companies generally don’t sell life and health policies and won’t write automobile liability policies. If you can’t find an insurance company willing to sell you the basic liability policy, you can purchase coverage through the Texas Automobile Insurance Plan Association (TAIPA). For more information about TAIPA, call
1-800-580-TAIPA (8247)
444-4441 in Austin
www.taipa.org
Regulation of Surplus Lines Insurance Companies
Surplus lines companies’ rates and policy forms are not subject to TDI review or to most Texas insurance laws. TDI does have limited oversight of the surplus lines market by
- licensing and regulating surplus lines agents
- determining whether surplus lines companies are legally eligible to do business in Texas
- maintaining a list of eligible surplus lines companies
- monitoring the financial condition of surplus lines companies.
Surplus lines companies must be licensed in their home state or country and must comply with those jurisdictions’ requirements, including periodic audits. Surplus lines companies are also subject to lawsuit in Texas, and their contracts are subject to the same rules of interpretation as other contracts.
Financial Requirements
Surplus lines insurance companies must have at least $15 million in combined capital and surplus to be eligible to do business in Texas. (Capital and surplus are a company’s financial cushion against unexpected claims.)
In addition, an insurance company based in a foreign country must have a trust fund of at least $5.4 million in a Federal Reserve member bank to protect its U.S. policyholders.
Surplus lines agents can only sell you a policy with an insurance company that meets Texas’ financial requirements. Texas law requires surplus lines agents to try to determine a surplus lines insurance company’s financial condition before placing your coverage.
Required Notice on Policies
Texas law requires agents to list their names and addresses on surplus lines policies they sell. Agents must also include a statement that the insurance company is not licensed in Texas and that the policy is a surplus lines policy. It must also disclose that TDI does not audit the insurance company’s financial solvency and that the insurance company is not a member of the guaranty association.
The Surplus Lines Stamping Office of Texas
The Surplus Lines Stamping Office of Texas (SLSOT) is a nonprofit association that helps TDI oversee the surplus lines market.
Surplus lines agents must send SLSOT a copy of each surplus lines insurance policy they sell. The stamping office then reviews each policy to make sure it was properly placed with an eligible surplus lines company instead of a Texas-licensed company.
Surplus lines insurance companies must submit annual financial statements to TDI and SLSOT. A company can lose its eligibility if it falls below Texas financial standards. Historically, very few surplus lines companies have lost eligibility for financial reasons. For more information, call SLSOT or visit its website
1-800-449-6394
346-3274 in Austin
www.slsot.org
For More Information or Assistance
For answers to general insurance questions, for information on filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website
1-800-252-3439
463-6515 in Austin
www.tdi.texas.gov
For printed copies of consumer publications, call the 24-hour Publications Order Line
1-800-599-SHOP (7467)
305-7211 in Austin
To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line
1-877-4FIRE45 (434-7345)
The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.
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