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Hawaii Surplus Lines study materials
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Hawaii Surplus Lines practice questions

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Question 1Surplus Lines Insurance

In Hawaii, which entity is authorized to transact surplus lines business by negotiating with and placing coverage through non-admitted insurers on behalf of a client?

  1. A surplus lines broker licensed under Hawaii law Correct answer.
  2. A captive insurance manager registered with the State
  3. A claims adjuster licensed for property and casualty
  4. A general lines producer who holds no surplus lines authority

Explanation

Hawaii requires a specific surplus lines broker license before a producer may place business with non-admitted insurers. A general lines or casualty license alone does not authorize that placement, and adjusters or captive managers hold different authorities.

Question 2Surplus Lines Insurance

Before a Hawaii surplus lines broker may place a risk with a non-admitted insurer, the broker must generally first establish that the coverage is unavailable from admitted insurers. This requirement is commonly called:

  1. A certificate of authority verification
  2. A market conduct filing
  3. A reinsurance intermediary disclosure
  4. A diligent effort or declination search Correct answer.

Explanation

Surplus lines exists as a residual market, so Hawaii requires documented evidence that admitted insurers declined or could not provide the coverage. This search is typically called a diligent effort and must be recorded in the broker's file.

Question 3Surplus Lines Insurance

A Hawaii surplus lines broker places a commercial property policy with an eligible non-admitted insurer. Which statement best describes the role of the Hawaii insurance guaranty association fund with respect to that policy?

  1. The guaranty fund covers surplus lines claims up to the standard statutory limit
  2. The guaranty fund covers surplus lines claims only after a state-ordered rehabilitation
  3. The guaranty fund covers surplus lines policies if the broker filed a guaranty notice
  4. The guaranty fund does not cover surplus lines policies, so the insured bears the insurer insolvency risk Correct answer.

Explanation

Guaranty association protection is a feature of the admitted market and does not extend to surplus lines placements in Hawaii. Insureds placing surplus lines business therefore assume the credit risk of the non-admitted insurer, which is why brokers must disclose that fact.

Question 4Surplus Lines Insurance

Hawaii law requires a surplus lines broker to disclose to the client, before or at placement, that the insurer is not admitted in Hawaii. The primary purpose of that disclosure is to:

  1. Confirm that the policy has been approved by the Insurance Division for form and rate
  2. Establish the broker's authority to bind coverage on the insurer's behalf
  3. Document that the client waived all policy conditions and exclusions
  4. Warn the client that guaranty fund protection and full admitted-market regulation do not apply Correct answer.

Explanation

The surplus lines disclosure informs the client that the insurer is unlicensed in Hawaii and therefore outside guaranty fund protection and routine form and rate review. It does not waive policy terms or create binding authority.

Question 5Surplus Lines Insurance

Which of the following is a standard eligibility condition for an insurer to be used by a Hawaii surplus lines broker?

  1. The insurer holds a Hawaii certificate of authority for the same line of coverage
  2. The insurer reinsures all business with a Hawaii-admitted carrier
  3. The insurer maintains the capital and surplus required for non-admitted insurers and appears on the state's eligible list Correct answer.
  4. The insurer is domiciled in Hawaii and files premium tax returns locally

Explanation

Surplus lines insurers must meet financial eligibility standards and be recognized on the state's eligible surplus lines insurer list. Holding a Hawaii certificate of authority would make the insurer admitted, which is the opposite of surplus lines.

Question 6Surplus Lines Insurance

A Hawaii surplus lines broker collects premium from an insured and must remit the applicable surplus lines premium tax. Which statement correctly describes the general obligation?

  1. The non-admitted insurer pays the tax directly to the Insurance Division each quarter
  2. The insured must self-report the tax annually on a personal income return
  3. The tax is waived whenever the insured is a Hawaii business entity
  4. The broker reports and pays the tax as required by Hawaii law based on the placed premium Correct answer.

Explanation

Hawaii imposes surplus lines premium tax obligations that the licensed surplus lines broker satisfies through reporting and payment on placed premium. The duty is not shifted to the insured or waived for local business entities.

Question 7Surplus Lines Insurance

A Hawaii surplus lines broker keeps records of declinations, placement documents, and disclosures. Which statement best reflects the recordkeeping expectation?

  1. Records may be discarded once the policy is issued because the insurer holds the file
  2. Records must be filed with the Insurance Division before each policy is issued
  3. Records need be kept only when the insured requests a copy
  4. Records must be maintained and made available to the Insurance Division for examination for the required retention period Correct answer.

Explanation

Surplus lines brokers must keep documentation of the diligent effort, placement, and disclosures, and produce it for regulatory examination. Retention is required for the statutory period rather than until issuance or on request only.

Question 8Surplus Lines Insurance

Which line of business is most commonly placed in the Hawaii surplus lines market?

  1. Standard personal auto liability for Hawaii residents
  2. Workers' compensation coverage required by statute
  3. Specialty or high-hazard commercial risks that admitted insurers decline Correct answer.
  4. Basic homeowners coverage for a single-family dwelling

Explanation

Surplus lines is a residual market used when admitted insurers decline a risk, so it most often handles specialty, unusual, or high-hazard commercial exposures. Standard personal auto, statutory workers' compensation, and basic homeowners are normally available in the admitted market.

Question 9Surplus Lines Insurance

A Hawaii producer holds a surplus lines broker license and wants to place a risk with an insurer that is not on the state's eligible surplus lines insurer list. What is the correct course of action?

  1. Place the risk and rely on the insurer's home-state certificate of authority
  2. Place the risk because the client signed a broker authorization form
  3. Do not place the risk with that insurer unless the placement satisfies Hawaii's exception process for eligible insurers Correct answer.
  4. Place the risk and note the insurer's ineligibility in the client disclosure

Explanation

Hawaii limits surplus lines placements to eligible non-admitted insurers, and using an insurer that is not on the list requires meeting the statutory exception process. A client authorization or a home-state license does not substitute for Hawaii eligibility.

Question 10Surplus Lines Insurance

An insured asks a Hawaii surplus lines broker why the surplus lines policy costs more than an admitted quote that was later withdrawn. Which response is most accurate?

  1. Surplus lines rates are capped at the last admitted quote the insured received
  2. Surplus lines pricing is not rate-filed or approved, so it reflects the non-admitted insurer's own underwriting judgment for a hard-to-place risk Correct answer.
  3. Surplus lines rates are set by the Insurance Division using a statutory surcharge formula
  4. Surplus lines rates are identical to admitted rates but include a broker commission

Explanation

Non-admitted insurers are not subject to Hawaii prior rate approval, so their pricing reflects individual underwriting of the declined risk. There is no statutory formula, cap tied to admitted quotes, or rate-filing requirement for these placements.

Question 11Surplus Lines Insurance

A Hawaii surplus lines broker documents a diligent effort by obtaining three declinations from admitted insurers. One declination is from an admitted insurer that writes the same class but declined this particular risk. How should the broker treat that declination?

  1. It must be discarded because the insurer writes the same class of business
  2. It counts only if the insurer is a Hawaii-domiciled carrier
  3. It counts only if the declination is notarized by the insured
  4. It counts as valid evidence because the admitted insurer declined this specific risk Correct answer.

Explanation

The diligent effort focuses on whether admitted insurers will write the specific risk, so a declination from an insurer that writes the class but refuses this risk is valid evidence. Notarization and domicile are not conditions for a valid declination.

Question 12Surplus Lines Insurance

A Hawaii surplus lines broker is placing coverage for an insured with a mortgagee listed on the policy. The insured later asks whether the mortgagee is protected if the non-admitted insurer becomes insolvent. Which answer is correct?

  1. The mortgagee is protected up to the policy limit by the Insurance Division
  2. The mortgagee has no guaranty fund protection either, because the policy is surplus lines Correct answer.
  3. The mortgagee is protected if the broker added a guaranty fund endorsement
  4. The mortgagee is protected by the guaranty fund because lenders are preferred claimants

Explanation

Guaranty fund protection follows the admitted status of the insurer, not the identity of the loss payee, so a mortgagee on a surplus lines policy has no guaranty fund recourse. No endorsement or Division backstop creates that protection.

Question 13Surplus Lines Insurance

A Hawaii surplus lines broker is reviewing a policy that contains a manuscripted exclusion drafted specifically for the insured's operations. Which statement is correct regarding regulatory review of that form?

  1. The form is not subject to prior approval by the Insurance Division because the insurer is non-admitted Correct answer.
  2. The form must be approved by the guaranty association before issuance
  3. The form is automatically approved if the broker signs the disclosure
  4. The form must be filed and approved before the policy can be issued

Explanation

Surplus lines forms are not subject to Hawaii prior approval because the insurer is not admitted. The broker's disclosure and the guaranty association play no role in form approval.

Question 14Surplus Lines Insurance

A Hawaii surplus lines broker discovers after binding that the insurer used was not on the eligible list and no exception applied. What is the broker's most appropriate immediate action?

  1. Ask the insured to sign a retroactive waiver of the eligibility requirement
  2. Collect an additional fee from the insured to cover the eligibility gap
  3. Notify the insured and the Insurance Division and arrange compliant replacement or remediation of the placement Correct answer.
  4. Conceal the error until the policy renews and then switch insurers quietly

Explanation

Placing with an ineligible insurer is a compliance violation, and the broker should promptly disclose the situation and pursue a compliant remedy. Concealment, added fees, or retroactive waivers do not cure the violation.

Question 15Surplus Lines Insurance

A Hawaii surplus lines broker wants to advertise surplus lines services. Which practice is consistent with Hawaii requirements?

  1. Describing the non-admitted insurer as fully admitted in Hawaii
  2. Promising guaranty fund protection for all surplus lines policies
  3. Using the Insurance Division seal to suggest the insurer is state-approved
  4. Identifying the firm as a licensed surplus lines broker and avoiding any implication of state endorsement of the non-admitted insurer Correct answer.

Explanation

Advertising must accurately state the broker's licensing and must not imply that the state approves or endorses a non-admitted insurer. Using the Division seal, mislabeling the insurer as admitted, or promising guaranty protection would be misleading.

Question 16Surplus Lines Insurance

A Hawaii surplus lines broker receives a premium from an insured and holds it before remitting to the non-admitted insurer. Which statement best describes the broker's handling of those funds?

  1. The premium may be netted against the broker's own expenses without documentation
  2. The premium is held in a fiduciary capacity and must be accounted for and remitted as required Correct answer.
  3. The premium must be forwarded to the Insurance Division as an escrow deposit
  4. The premium becomes the broker's operating funds until the insurer invoices

Explanation

Premiums collected for an insurer are held in a fiduciary capacity, so the broker must account for and remit them under Hawaii requirements. They are not operating funds, cannot be freely netted, and are not deposited with the Division.

Question 17Surplus Lines Insurance

A Hawaii insured's surplus lines policy is canceled mid-term and a return premium is due. How should the surplus lines broker handle the return premium and the associated premium tax?

  1. Return the unearned premium and adjust the reported surplus lines premium tax to reflect the canceled exposure Correct answer.
  2. Send the return premium to the Insurance Division for redistribution
  3. Retain the return premium because surplus lines transactions are non-cancelable
  4. Refund the premium but keep the full tax because tax is never adjusted

Explanation

When a surplus lines policy is canceled, unearned premium goes back to the insured and the premium tax reporting is adjusted to the earned premium actually retained. Surplus lines policies can be canceled, and tax is not permanently fixed at the original amount.

Question 18Surplus Lines Insurance

A Hawaii surplus lines broker is asked to place coverage for a risk that an admitted insurer will write at an approved rate. What is the broker's proper response?

  1. Place the risk in surplus lines if the insured signs a request for non-admitted coverage
  2. Place the risk in the admitted market, because surplus lines may not be used when admitted coverage is available Correct answer.
  3. Place the risk in surplus lines and disclose the admitted alternative afterward
  4. Place the risk in surplus lines because the broker prefers the non-admitted insurer's commission

Explanation

Surplus lines is available only when admitted insurers will not provide the coverage, so a risk that an admitted insurer will write belongs in the admitted market. Client preference, commission, or later disclosure does not justify improper surplus lines placement.

Question 19Surplus Lines Insurance

A Hawaii surplus lines broker is preparing the annual or periodic surplus lines tax report. Which item is properly included in the report?

  1. The gross premium written on Hawaii surplus lines placements during the reporting period Correct answer.
  2. The broker's office rent allocated to surplus lines activity
  3. The insured's federal income tax identification number only
  4. The admitted insurers' declination letters as taxable exhibits

Explanation

The surplus lines tax report is based on gross premium written for Hawaii surplus lines placements in the period. Office overhead, declination letters, and taxpayer identifiers are not premium subject to the tax.

Question 20Surplus Lines Insurance

A Hawaii surplus lines broker delegates some placement tasks to an unlicensed assistant. Which statement correctly describes the permissible scope?

  1. The assistant may sign the disclosure on the broker's behalf without review
  2. The assistant may bind coverage if the broker reviews the file the next day
  3. The assistant may negotiate terms because surplus lines is unregulated
  4. The licensed broker remains responsible, and the assistant may not perform acts requiring a license such as negotiating or binding coverage Correct answer.

Explanation

Licensing rules restrict unlicensed staff from negotiating, soliciting, or binding insurance, and the licensed broker remains accountable for the placement. Surplus lines is regulated, and after-the-fact review or unreviewed signatures do not cure unauthorized acts.

Question 21Surplus Lines Insurance

A Hawaii surplus lines broker places a policy effective January 1. The insured reports a claim in March, and the non-admitted insurer denies coverage based on a policy exclusion. Which statement best describes the broker's role in the dispute?

  1. The broker should assist the insured with the claim process and disclosure records but cannot override the insurer's coverage determination Correct answer.
  2. The broker must order the insurer to pay because the broker placed the policy
  3. The broker must pay the claim because the insurer is non-admitted
  4. The broker must refer the claim to the guaranty association for payment

Explanation

The broker facilitates placement and disclosure but does not become the insurer or the claims decision-maker. The broker cannot compel payment, and the guaranty association does not handle surplus lines claims.

Question 22Surplus Lines Insurance

A Hawaii surplus lines broker places a policy with an eligible non-admitted insurer that is authorized in its home state but has no Hawaii certificate of authority. Which statement is correct about the insurer's status in Hawaii?

  1. The insurer may write directly for Hawaii insureds without a broker
  2. The insurer is a non-admitted insurer and may write only through a licensed surplus lines broker under Hawaii rules Correct answer.
  3. The insurer is deemed admitted because it holds a home-state license
  4. The insurer must obtain a Hawaii certificate of authority before any policy can be bound

Explanation

A home-state license does not make an insurer admitted in Hawaii; it remains non-admitted and must be accessed through a licensed surplus lines broker. It cannot write directly for Hawaii insureds, and no deemed admission arises from the home-state license.

Question 23Surplus Lines Insurance

A Hawaii surplus lines broker is evaluating whether a diligent effort is required for a renewal of an existing surplus lines policy. Which approach is most consistent with Hawaii requirements?

  1. Rely indefinitely on the original declinations because the risk has not changed
  2. Document the current market search at renewal unless the applicable rule permits reliance on the original declinations Correct answer.
  3. Rely on the insured's statement that admitted coverage is unavailable
  4. Skip the search because renewals are exempt from the diligent effort requirement

Explanation

The diligent effort reflects current market conditions, so it is generally documented again at renewal unless a specific rule allows reliance on prior declinations. Indefinite reliance, blanket renewal exemptions, and insured statements do not satisfy the requirement.

Question 24Surplus Lines Insurance

A Hawaii surplus lines broker learns that an eligible non-admitted insurer has been removed from the state's eligibility list after a policy was bound but before renewal. What is the most appropriate action at renewal?

  1. Do not renew with that insurer unless the placement qualifies under Hawaii's exception process, and seek an eligible alternative Correct answer.
  2. Renew because the insurer remains licensed in its home state
  3. Renew automatically because the policy was lawfully bound the prior year
  4. Renew and disclose the delisting to the insured without further action

Explanation

Eligibility is assessed at the time of placement, so an insurer removed from the list cannot simply be renewed with unless an exception applies. Prior lawful placement, disclosure alone, or a home-state license does not preserve eligibility.

Question 25Surplus Lines Insurance

A Hawaii surplus lines broker collects a policy premium and also charges the insured a separate broker fee. Which statement best reflects the compliance concern?

  1. The fee may be kept off the records because it is not premium
  2. The fee is prohibited in all surplus lines transactions
  3. The fee may replace the premium tax the broker owes
  4. The fee must be disclosed and must not be an undisclosed compensation that circumvents premium tax or fiduciary accounting Correct answer.

Explanation

Separate broker fees raise disclosure, fiduciary accounting, and premium tax concerns, so they must be transparent and properly accounted for. They are not automatically prohibited, but they cannot be hidden or used to displace premium tax.

Question 26Surplus Lines Insurance

Under Hawaii law, a surplus lines broker may place coverage with a non-admitted insurer only if the insurer meets which requirement?

  1. The insurer has an office physically located in Honolulu
  2. The insurer holds a Hawaii certificate of authority for the specific line being placed
  3. The insurer is authorized to write business in at least one U.S. state and appears on the state's eligibility list Correct answer.
  4. The insurer is reinsured by a Hawaii-admitted carrier

Explanation

A non-admitted insurer must be authorized in its home state (or otherwise meet the eligibility standard) and be listed on the state's approved surplus lines insurer list before a Hawaii broker may use it. A Hawaii certificate of authority is the mark of an admitted carrier, which is the opposite of surplus lines placement.

Question 27Surplus Lines Insurance

The core purpose of Hawaii's surplus lines law is best described as which of the following?

  1. Guaranteeing that surplus lines premiums will always be lower than admitted market rates
  2. Replacing the admitted market for all personal auto and homeowners risks
  3. Permitting brokers to write coverage without any licensing or tax obligations
  4. Allowing coverage to be written by non-admitted insurers when admitted insurers will not accept the risk Correct answer.

Explanation

Surplus lines exists as a market of last resort: coverage may be placed with non-admitted insurers only when the admitted market cannot or will not provide it. The framework still imposes licensing, diligent effort, and tax duties on the broker.

Question 28Surplus Lines Insurance

Before placing a risk with a non-admitted insurer, a Hawaii surplus lines broker must generally demonstrate which of the following?

  1. That the non-admitted insurer has a Hawaii claims office
  2. That the insured signed a waiver of all policy exclusions
  3. That the premium exceeds a statutory dollar threshold
  4. That a diligent effort was made to obtain coverage from admitted insurers Correct answer.

Explanation

The diligent effort requirement means the broker must show that admitted insurers declined the risk or did not offer coverage on comparable terms before turning to the surplus lines market. The evidence is typically documented declinations.

Question 29Surplus Lines Insurance

Which document must a Hawaii surplus lines broker typically provide to the insured at or near placement to disclose the nature of the transaction?

  1. A certificate of admission issued by the insurance division
  2. A reinsurance certificate naming the insured as beneficiary
  3. A surplus lines disclosure notice stating that the insurer is not admitted in Hawaii Correct answer.
  4. A copy of the insurer's home-state annual statement

Explanation

Because the insurer is not admitted, the insured must be told that the policy is not protected by the state guaranty fund in the same way as an admitted policy and that the insurer is not regulated as an admitted carrier in Hawaii. This disclosure is a standard surplus lines placement document.

Question 30Surplus Lines Insurance

A Hawaii surplus lines broker must be licensed in which capacity to transact surplus lines business?

  1. As a surplus lines broker licensed by the insurance division Correct answer.
  2. As a reinsurance intermediary registered with the state
  3. As an admitted insurer's appointed general agent only
  4. As a claims adjuster for the non-admitted insurer

Explanation

Hawaii requires a specific surplus lines broker license before a producer may place business with non-admitted insurers. Holding an ordinary producer license alone does not authorize surplus lines placements.

Question 31Surplus Lines Insurance

Hawaii surplus lines brokers must maintain records of surplus lines transactions primarily for which purpose?

  1. To support examination and tax verification by the insurance division Correct answer.
  2. To satisfy the non-admitted insurer's marketing needs
  3. To replace the policy declarations page
  4. To share with competing brokers on request

Explanation

Recordkeeping allows the insurance division to verify compliance with diligent effort, eligibility, disclosure, and premium tax obligations. Records are not a substitute for policy documents and are not shared with competitors.

Question 32Surplus Lines Insurance

Hawaii surplus lines premium tax is imposed on which party in the transaction?

  1. The non-admitted insurer, which files its own Hawaii return
  2. The insured, who remits directly to the state tax office
  3. The retail agent of record, who absorbs the tax as a cost
  4. The surplus lines broker, who collects and remits the tax Correct answer.

Explanation

The surplus lines broker is responsible for collecting the applicable premium tax from the insured and remitting it to the state. This is one of the core compliance duties that distinguishes surplus lines from admitted-market premium taxation.

Question 33Surplus Lines Insurance

A Hawaii surplus lines broker is asked whether an admitted insurer's policy must be used when the admitted insurer offers coverage at a higher price than a non-admitted insurer. Which statement is correct?

  1. Surplus lines may be used only when admitted insurers decline or cannot provide the coverage Correct answer.
  2. The insured may always choose the cheaper non-admitted policy regardless of admitted availability
  3. Price alone determines whether a risk is eligible for surplus lines placement
  4. The broker may split the risk between admitted and non-admitted insurers to lower cost

Explanation

Eligibility for surplus lines turns on whether the admitted market can provide the coverage, not on whether the non-admitted quote is cheaper. A higher admitted price does not by itself justify a surplus lines placement.

Question 34Surplus Lines Insurance

A Hawaii surplus lines broker is preparing to renew an existing surplus lines policy. Which approach best reflects the diligent effort obligation at renewal?

  1. The broker should confirm whether admitted market conditions have changed and document the effort as required Correct answer.
  2. The broker may renew without any documentation if the premium is unchanged
  3. No new declinations are ever needed because the risk was already declined once
  4. The broker must always obtain exactly three new declinations each year

Explanation

Diligent effort is not a one-time event; the broker should reassess whether the admitted market can now write the risk and document the effort consistent with Hawaii requirements. The precise documentation may vary, but a blanket rule that nothing is ever needed at renewal is incorrect.

Question 35Surplus Lines Insurance

A Hawaii surplus lines broker places a policy with an eligible non-admitted insurer and then wishes to add a coverage endorsement mid-term. Which statement is most accurate?

  1. The insured must reapply for a new surplus lines license
  2. Endorsements are prohibited because the original placement was surplus lines
  3. The endorsement may be placed with the same eligible non-admitted insurer without a new diligent effort search Correct answer.
  4. The endorsement must be placed with an admitted insurer even if the base policy is non-admitted

Explanation

Once a risk is properly placed with an eligible non-admitted insurer, mid-term endorsements to that same policy generally may be handled by that insurer without restarting the diligent effort search. The eligibility and tax rules continue to apply to the endorsement premium.

Question 36Surplus Lines Insurance

A Hawaii surplus lines broker is unsure whether a particular insurer appears on the state's eligible surplus lines insurer list. What is the most prudent course of action before binding?

  1. Ask the insured to confirm the insurer's eligibility in writing
  2. Verify the insurer's current eligibility with the insurance division before placing the risk Correct answer.
  3. Bind the policy and verify eligibility afterward during the next reporting cycle
  4. Rely on the insurer's own statement that it is eligible in Hawaii

Explanation

The broker bears the responsibility for confirming that the insurer is on the current eligibility list before binding. Post-placement verification or reliance on unverified statements can result in an unauthorized placement.

Question 37Surplus Lines Insurance

A Hawaii surplus lines broker collects a premium and deposits it into the brokerage's general operating account before remitting tax and insurer premium. Why is this practice problematic?

  1. Surplus lines premium must be held in a segregated fiduciary capacity and not commingled with business funds Correct answer.
  2. Surplus lines premium may never be deposited into any bank account
  3. Premium must be sent directly to the insurance division
  4. Premium must be held by the insured until the policy is delivered

Explanation

Premium collected on behalf of insureds and insurers is fiduciary money and must be maintained separately from the broker's operating funds. Commingling creates a risk that tax and insurer remittances will not be made timely.

Question 38Surplus Lines Insurance

A Hawaii surplus lines broker is reviewing a non-admitted policy form that differs substantially from admitted market forms. Which statement best describes the broker's duty regarding the insured?

  1. The broker should explain material differences and limitations so the insured can make an informed decision Correct answer.
  2. The broker must obtain the insurance division's approval of the form before delivery
  3. The broker must rewrite the form to match the admitted market version
  4. The broker has no duty because non-admitted forms are unregulated

Explanation

Non-admitted policy forms are not filed or approved in the same way as admitted forms, so the broker's professional duty is to make sure the insured understands material differences and restrictions. The broker does not have authority to rewrite the insurer's form or obtain state approval for it.

Question 39Surplus Lines Insurance

A Hawaii surplus lines broker is placing a commercial property risk. The admitted insurers that declined cited the age of the building. Which documentation best supports the diligent effort requirement?

  1. Written declinations from admitted insurers identifying the risk characteristics they would not accept Correct answer.
  2. A verbal statement from one admitted underwriter
  3. A note in the file that the building is old
  4. The insured's own statement that no admitted insurer would write the risk

Explanation

Diligent effort is best evidenced by contemporaneous written declinations from admitted insurers that identify the reason coverage was refused. This creates an auditable record supporting the surplus lines placement.

Question 40Surplus Lines Insurance

A Hawaii surplus lines broker learns that an insured's non-admitted insurer has become insolvent. Which statement best describes the insured's position?

  1. The insurance division assumes the insurer's claim obligations
  2. The surplus lines broker must pay the claim from the premium trust account
  3. The insured is fully protected by the Hawaii guaranty fund as if the insurer were admitted
  4. The insured generally lacks guaranty fund protection and may have limited recourse Correct answer.

Explanation

Surplus lines insurers are not members of the state guaranty association in the same way admitted insurers are, which is why disclosure of this limited protection is required. The insured's recourse is generally against the insolvent insurer and any available assets, not the guaranty fund.

Question 41Surplus Lines Insurance

A Hawaii surplus lines broker is asked to place coverage on a risk located outside Hawaii for an insured domiciled in Hawaii. Which consideration is most relevant?

  1. The broker should determine whether the other state's surplus lines rules and tax allocation apply to the placement Correct answer.
  2. The broker may use any insurer regardless of eligibility in either state
  3. The placement is automatically exempt from all surplus lines regulation
  4. Only Hawaii law ever applies, so the broker ignores the other state's rules

Explanation

Multi-state surplus lines placements can implicate the surplus lines laws, eligibility lists, and tax allocation rules of each state where the risk is located. A broker must determine which state's rules govern before binding.

Question 42Surplus Lines Insurance

A Hawaii surplus lines broker is preparing the periodic premium tax report. Which item should be included in the taxable premium base?

  1. The broker's commission only
  2. The gross premium charged for the surplus lines coverage, subject to statutory exclusions Correct answer.
  3. Only the policy's minimum earned premium
  4. Fees paid to the inspecting engineer for a loss control report

Explanation

The surplus lines premium tax is calculated on the premium written for the coverage, not merely the commission or a minimum earned amount. Statutory exclusions, such as certain separately stated fees, are applied as the law provides.

Question 43Surplus Lines Insurance

A Hawaii surplus lines broker wants to confirm that a declination from an admitted insurer is valid for diligent effort purposes. Which declination is most useful?

  1. A declination from an insurer that does not write that class of business at all
  2. A declination from another surplus lines broker
  3. A declination from a non-admitted insurer
  4. A declination from an admitted insurer that actively writes the class and states why it will not accept this risk Correct answer.

Explanation

A meaningful declination comes from an admitted insurer that actually writes the relevant line and has evaluated the specific risk. A declination from an insurer that never writes the class, or from a non-admitted source, does not demonstrate that the admitted market was tested.

Question 44Surplus Lines Insurance

A Hawaii surplus lines broker is offered a commission by a non-admitted insurer that is not on the state's eligibility list. What is the broker's proper response?

  1. Accept the commission and place the risk, since the insured benefits from the coverage
  2. Decline to place the risk with that insurer because it is not eligible Correct answer.
  3. Place the risk but disclose the ineligibility to the insured afterward
  4. Place the risk and report it only if a claim occurs

Explanation

A surplus lines broker may not place business with a non-admitted insurer that is not on the eligibility list, regardless of the commission offered. Doing so would violate Hawaii placement rules and expose the broker to regulatory action.

Question 45Surplus Lines Insurance

A Hawaii surplus lines broker delegates routine administrative tasks, such as file assembly and mailing, to an unlicensed assistant. Which statement best describes the limits of that delegation?

  1. The assistant may perform clerical tasks but may not solicit, negotiate, or bind insurance Correct answer.
  2. The assistant may negotiate terms and bind coverage as long as the broker reviews the file later
  3. The assistant may place surplus lines business independently once trained
  4. The assistant may sign the surplus lines disclosure notice on the broker's behalf

Explanation

Unlicensed staff may handle clerical and administrative functions but may not engage in activities that require a license, such as soliciting, negotiating, or binding coverage. The licensed broker remains responsible for the placement.

Question 46Surplus Lines Insurance

A Hawaii surplus lines broker is comparing two eligible non-admitted insurers for the same risk. One has a strong surplus position but a history of slow claims handling; the other has a smaller surplus but a strong claims reputation. Which approach best reflects the broker's professional duty?

  1. Choose the insurer paying the higher commission
  2. Evaluate financial solvency and claims-paying ability together and document the basis for the selection Correct answer.
  3. Let the insured select the insurer without any broker recommendation
  4. Choose the insurer with the largest surplus regardless of claims history

Explanation

Because the insured lacks guaranty fund protection, the broker should assess both financial strength and claims-paying ability before recommending a non-admitted insurer. Documenting the analysis supports the placement decision and the broker's professional duty.

Question 47Surplus Lines Insurance

A Hawaii surplus lines broker placed a risk in good faith with an insurer that was later removed from the eligibility list. The policy is still in force and a renewal is approaching. Which statement best describes the broker's obligation at renewal?

  1. The broker must place the renewal with an insurer that is currently eligible, absent a specific exception Correct answer.
  2. The broker may renew if the insured signs a waiver of eligibility requirements
  3. The broker may renew with the same insurer because the original placement was compliant
  4. The broker must cancel the existing policy immediately upon removal

Explanation

Eligibility is assessed at the time of placement, so a renewal is a new placement decision that requires a currently eligible insurer unless a specific exception applies. The broker cannot rely on the original compliant placement to continue using a delisted insurer.

Question 48Surplus Lines Insurance

A Hawaii surplus lines broker is reviewing a claim denial based on a policy exclusion that was added by manuscript endorsement. The insured argues the exclusion was never explained. Which factor is most important in evaluating the broker's exposure?

  1. Whether the non-admitted insurer filed the endorsement with the state
  2. Whether the insured read the entire policy after delivery
  3. Whether the broker earned a commission on the endorsement
  4. Whether the broker documented that the exclusion and its effect were discussed with the insured before binding Correct answer.

Explanation

When a non-admitted policy contains a manuscripted exclusion that materially reduces coverage, documentation that the broker explained it before binding is the strongest evidence of fulfilling the professional disclosure duty. Filing status and commission are not the central issues.

Question 49Surplus Lines Insurance

A Hawaii surplus lines broker is structuring a large commercial placement that includes both admitted and non-admitted layers. Which statement best describes the compliance concern?

  1. The entire program becomes a surplus lines placement once any layer is non-admitted
  2. The broker may allocate premium tax only to the admitted layers
  3. Each layer must independently satisfy the eligibility and diligent effort rules applicable to it Correct answer.
  4. The admitted layers are exempt from rate filing once a surplus layer exists

Explanation

In a layered program, the admitted portions remain subject to admitted-market rules and the surplus lines portions must independently meet eligibility and diligent effort requirements. The presence of a surplus layer does not convert or exempt the admitted layers.

Question 50Surplus Lines Insurance

A Hawaii surplus lines broker is asked by an insured to backdate a surplus lines policy to cover a loss that occurred before the application was submitted. Which statement best describes the compliance issue?

  1. Backdating is permitted if the insurer agrees and the premium is paid
  2. Backdating is required whenever the insured had prior coverage with another carrier
  3. Backdating to cover a known prior loss raises misrepresentation and eligibility concerns and should not be used to shift an existing loss to the policy Correct answer.
  4. Backdating is permitted only if the broker waives the commission

Explanation

Backdating a policy to reach back over a loss that has already occurred can constitute misrepresentation to the insurer and improperly shift a known loss onto the policy. The broker should not facilitate such a request, regardless of insurer willingness or commission treatment.