Surplus Lines Eligibility, Diligent Search, and Declination Requirements
The Diligent Search Standard
Before placing a risk with a surplus lines insurer, the broker must make a diligent search of the authorized market. In practice this means contacting authorized insurers (or their managing general agents) that write the class of business in Alaska and documenting that each declined or did not offer coverage on the terms sought. Alaska regulation permits the search to be satisfied by contacting a minimum number of authorized insurers for the class - historically three - but the number is not a safe harbor if the broker knew of others actively writing the risk.
Declinations
Each declination must be written and retained. A declination may state that the insurer does not write the class, does not meet the requested terms, or declines for underwriting reasons. Oral refusals do not satisfy the requirement. The broker must also record the coverage, limits, and terms requested so the declination can be compared to the surplus lines placement.
Exemptions from the Search
Certain risks are exempt from the diligent search - most notably exempt commercial purchasers (large, sophisticated buyers meeting statutory size thresholds) and risks on the export list. Questions test whether the candidate recognizes these carve-outs.
Traps
- Confusing "diligent search" with "best price" - the standard is market availability, not cheapest premium.
- Assuming a declination from a broker's own favorite carrier satisfies the rule when that carrier does not write the class.
- Forgetting that the search must be documented at the time of placement, not reconstructed later.
Worked Example
A broker contacts two authorized insurers who decline and immediately binds with a surplus lines carrier. If a third authorized insurer actively writes the class in Alaska, the search is likely deficient. Rule of thumb: search the class, not just the count.