Surplus Lines Definitions and Eligibility
Core definitions
"Surplus lines insurance" is insurance that cannot be procured from authorized insurers in the admitted market. A "surplus lines agent" is a specially licensed producer who may place that coverage with an eligible unauthorized insurer. An "eligible unauthorized insurer" is an insurer that is not admitted in Michigan but satisfies the Commissioner’s standards and appears on the DIFS eligibility list. "Admitted" and "eligible" are not synonyms: an eligible insurer is still unauthorized in Michigan.
Eligibility standards
Michigan’s list is not open to any insurer that will accept the risk. The insurer must generally be authorized in its domiciliary jurisdiction, be in sound financial condition, meet minimum capital and surplus requirements (commonly at least $15 million), and comply with DIFS reporting and trust-fund requirements where applicable. The Commissioner may remove an insurer from the list if it falls below standards. A surplus lines agent must verify eligibility at placement, not rely on an old list.
Worked example
An agent finds a carrier domiciled in Arizona with $12 million in capital and surplus, an A- rating, and willingness to write a Michigan risk. The carrier is not on the DIFS eligible list. Even if three authorized insurers declined the account, the agent cannot place the coverage there. If the carrier later raises surplus to $16 million, is authorized in Arizona, and is placed on the Michigan list, it may be used for a proper surplus lines placement.
Traps that cost marks
Do not treat a high financial rating as a substitute for Michigan eligibility. Do not use an insurer that was removed from the list, even if it held a certificate earlier. Do not confuse an eligible unauthorized insurer with a domestic surplus lines insurer or an admitted carrier. Do not describe the eligibility list as permanent or automatic.