Understanding the Surplus Lines Market
In the Florida insurance landscape, the surplus lines market serves as a vital safety valve for risks that the standard, "admitted" market is unwilling or unable to cover. While most policies are written by admitted carriers—those licensed by the Florida Office of Insurance Regulation (OIR) and backed by the Florida Insurance Guaranty Association (FIGA)—some high-risk or unique exposures require specialized handling.
For students preparing for the complete FL 2-20 exam guide, understanding the distinction between these markets is critical. Surplus lines insurers are "non-admitted," meaning they do not have a certificate of authority from the state to transact insurance in the same way as admitted carriers, but they are authorized to provide coverage through licensed surplus lines agents under specific regulatory conditions.
Admitted vs. Surplus Lines Carriers
| Feature | Admitted Carriers | Surplus Lines Carriers |
|---|---|---|
| Regulation | Strict OIR oversight of forms/rates | More flexibility in forms/rates |
| Guaranty Fund | Protected by FIGA | No FIGA protection |
| Agent License | 2-20 General Lines Agent | Licensed Surplus Lines Agent |
| Market Type | Standard/Preferred risks | High-risk, unique, or distressed |
The Diligent Effort Requirement
A primary rule in Florida is that insurance cannot be placed with a surplus lines carrier solely to obtain a lower premium than what is available from an admitted insurer. Before a risk can be "exported" to the surplus lines market, the producing agent must make a diligent effort to place the coverage with admitted carriers.
According to Florida statutes, a diligent effort usually involves seeking coverage from at least three admitted insurers that are currently writing that type of coverage. If all three reject the risk, the agent may then seek coverage in the surplus lines market. There are exceptions to this rule, such as risks that appear on the Export List, which are pre-approved classes of insurance that the OIR has determined have no stable admitted market.
To master these requirements for your test, be sure to review our practice FL 2-20 questions regarding agent responsibilities and export procedures.
The Mandatory Disclosure Stamp
Every surplus lines policy issued in Florida must contain a specific disclosure in bold, conspicuous type. It informs the policyholder that the insurer is not licensed by the state, the rates and forms are not subject to the same oversight, and that in the event of insolvency, the Florida Insurance Guaranty Association (FIGA) will not pay claims.
The Florida Surplus Lines Service Office (FSLSO)
The Florida Surplus Lines Service Office (FSLSO) was created by the Florida Legislature as a non-profit entity to oversee the surplus lines industry. Its primary functions include:
- Protecting the state's premium tax revenue.
- Maintaining a central processing facility for surplus lines policies.
- Providing a platform for surplus lines agents to report their business.
- Ensuring that surplus lines insurers meet the financial requirements to be deemed "eligible" in Florida.
It is important to note that while the FSLSO monitors the market, they do not "approve" policies or regulate rates; their role is administrative and oversight-oriented to ensure compliance with Florida's Surplus Lines Law.
Financial Obligations and Fees
Licensing and Agent Responsibilities
Only a person licensed as a Surplus Lines Agent may place business with a surplus lines insurer. While a 2-20 General Lines Agent can act as the producing agent (the one who works directly with the client), they must work through a licensed surplus lines agent to finalize the placement.
The surplus lines agent is responsible for:
- Verifying that a diligent effort was made by the producing agent.
- Ensuring the surplus lines insurer is on the Florida Eligible list.
- Collecting and remitting the Premium Tax and Service Fee to the FSLSO.
- Filing the necessary affidavits and policy data with the FSLSO within the required timeframes.