Surplus Lines Producers and Brokers
Domain 4 tests the personal obligations that attach to an Iowa surplus lines producer license. The license is not just a sales credential; it carries bond, record, and fiduciary duties.
Licensing and bonding
- Hold a resident or nonresident producer license with the surplus lines authority; nonresident authority is generally reciprocal through NIPR.
- Iowa requires a surety bond for surplus lines brokers (commonly $25,000) or other approved security. The bond protects the state and insureds; it does not replace the license or the trust duty.
Records and fiduciary duties
- Keep records of each placement: the insured, the risk, the declinations, the eligible insurer, the policy, the premium, and the disclosure. Iowa's rules require retention for at least five years.
- Hold premiums in a fiduciary trust account; remit to the insurer or return unearned premium promptly; do not use premium as working capital.
- Commissions are earned under the producer's agreement; fees must be disclosed, reasonable, and not prohibited by Iowa law.
Worked example: A broker deposits a $40,000 surplus lines premium into the agency operating account and pays agency payroll before remitting to the insurer. Reasoning: the premium is held in trust, so the deposit is a fiduciary breach even if the insurer is later paid; the broker also risks license action and bond claims.
Traps: assuming the bond covers the insured's coverage dispute; charging an undisclosed policy fee; keeping declination notes only in memory; failing to return unearned premium after cancellation.