Michigan Surplus Lines common mistakes
Michigan Surplus Lines · Understand the traps and how to avoid them.
Treating the diligent search as satisfied by contacting only one admitted carrier, or by contacting only the insured's current carrier, before placing a risk with a surplus lines insurer.
Candidates confuse the surplus lines concept of 'unavailability in the admitted market' with a simple declination from a single company, and they underestimate how many admitted markets must be approached for the class of business involved.
What to do instead
Memorize that a diligent search requires contacting admitted insurers actually writing the class of business in Michigan, documenting each declination or lack of response, and retaining that record; be able to state that the number of contacts depends on the class of risk and market conditions, not a single carrier.
Assuming a surplus lines producer may place a Michigan risk with any unauthorized insurer, including one not on the state's eligible surplus lines insurer list.
Candidates conflate the general idea of an 'unauthorized insurer' with an 'eligible surplus lines insurer' and do not realize Michigan maintains a published list of insurers approved to write surplus lines.
What to do instead
Learn that placement must be with an insurer on the Michigan eligible surplus lines insurer list, that the insurer must be authorized to write the type of insurance in its domicile, and that placing with a non-listed unauthorized insurer is a violation even if the insurer is financially sound.
Confusing the surplus lines premium tax with the stamping fee and reporting both as if they were the same charge, or omitting the stamping fee from the transaction entirely.
Both are percentage-based charges collected at placement, so candidates merge them into one line item and lose track of which is a tax remitted to the state and which is a fee retained by the surplus lines stamping office or association.
What to do instead
Separate the two in study notes: the premium tax is a state tax on surplus lines premiums reported and remitted on the required schedule, while the stamping fee is a separate charge supporting the stamping office; practice computing each independently on a sample premium and showing them as distinct entries on a policy transmittal.
Placing a Michigan risk with a surplus lines insurer without delivering the required written disclosure to the insured that the insurer is not admitted and is not protected by the Michigan guaranty association.
Candidates treat the notice as a courtesy rather than a mandatory condition of placement, and they do not connect the disclosure to the guaranty fund exclusion that follows from unauthorized status.
What to do instead
Memorize that the insured must receive written notice, typically before or at the time the coverage is bound, stating the insurer is not licensed in Michigan, is not subject to Michigan regulation, and is not covered by the Michigan guaranty association; be able to describe how and when the notice is delivered and retained.
Believing that surplus lines producers have the same licensing and appointment framework as admitted-market producers, and skipping the separate surplus lines license requirement.
Candidates study the general producer licensing chapter and assume one license covers all property and casualty placement, missing the distinct surplus lines license and its qualification and continuing education elements.
What to do instead
Study the surplus lines license as a separate authority: who may apply, what underlying producer license is required, how the license is maintained, and what conduct is prohibited; be able to distinguish what an admitted-market producer may do from what only a licensed surplus lines producer may do.
Answering that commissions on surplus lines business are unregulated or freely negotiated, rather than recognizing the specific limits and disclosure expectations that apply to surplus lines commissions.
Candidates generalize from admitted-market commission practices or assume surplus lines is entirely deregulated, so they miss rules about commission treatment, disclosure to the insured, and prohibitions on sharing commissions with unlicensed persons.
What to do instead
Review the surplus lines commission provisions directly: what may be charged, what must be disclosed, and the prohibition on paying commissions to unlicensed persons; practice distinguishing lawful commission arrangements from rebating or unauthorized sharing.
Assuming the Michigan guaranty association protects policyholders of any insurer that appears legitimate, including unauthorized surplus lines insurers.
The guaranty association concept is taught in admitted-market contexts, and candidates carry the assumption over without checking that eligibility depends on the insurer being an authorized member insurer.
What to do instead
Memorize the rule that the Michigan guaranty association responds to insolvencies of authorized member insurers, not unauthorized surplus lines insurers; connect this to why the surplus lines disclosure notice must tell the insured there is no guaranty fund protection.
Failing to distinguish which risks are eligible for surplus lines placement from those that must be written in the admitted market, such as risks where an admitted market is readily available.
Candidates learn the definition of surplus lines in the abstract but do not apply the eligibility filter, so they approve placements for ordinary personal lines or common commercial risks that admitted carriers actively write.
What to do instead
Build a decision checklist: identify the class of business, confirm no admitted insurer will write it after a documented diligent search, confirm the insurer is on the eligible list, then confirm the risk is not otherwise required to be placed in the admitted market; apply the checklist to sample scenarios.
Treating the surplus lines policy documentation as optional paperwork and not retaining the diligent search record, declination documentation, and transmittal information for the required period.
Candidates focus on the placement decision and the premium numbers, viewing recordkeeping as administrative trivia rather than a regulated obligation subject to examination.
What to do instead
Memorize what must be documented for each surplus lines placement and the record retention expectation; practice describing an exam-ready file that contains the search evidence, declinations, insurer eligibility confirmation, disclosure notice, and premium tax and stamping fee records.
Answering coverage-principle questions by applying admitted-market policy forms and standard exclusions to surplus lines policies without recognizing that surplus lines forms are often nonstandard and manuscripted.
Candidates study coverage through standard ISO-style forms and assume the same wording, limits, and exclusions apply to surplus lines placements, so they misread questions about nonstandard terms and endorsements.
What to do instead
Study surplus lines coverages as nonstandard by default: read the actual policy language, identify manuscripted terms and unique exclusions, and confirm that coverage intent in the binder matches the issued form; practice spotting differences between standard admitted forms and surplus lines alternatives for the same class of risk.