Producer Licensing, Commissions, and Conduct
Licensing
A producer who places surplus lines must hold a Michigan surplus lines agent license in addition to the underlying property and casualty authority. Michigan requires a resident license, qualifying experience or examination, and a surety bond (commonly $50,000) to protect against fiduciary failures. Nonresident surplus lines agents may qualify through reciprocity, but they must still comply with Michigan placement, notice, tax, and reporting rules.
Commissions and fees
Commissions may be paid only to properly licensed persons. A regular P&C licensee who is not surplus lines licensed cannot place the risk or share in the surplus lines commission. Referral fees to unlicensed persons raise illegal-payment concerns. The agent must handle premium in a fiduciary capacity, avoid commingling, and follow Michigan rules on fees, rebating, and disclosure.
Conduct
Surplus lines agents are expected to place coverage only after a documented search, use eligible insurers, deliver required notices, and remit tax. Misrepresenting the insurer’s admitted status or guaranty fund protection is a serious violation. Recordkeeping must allow DIFS to reconstruct the transaction.
Worked example
A licensed P&C producer without surplus lines authority brings a difficult account to a surplus lines agent. The surplus lines agent places the policy and pays the P&C producer a share of the commission. That payment is problematic because the referring producer is not surplus lines licensed and did not lawfully place the risk. A flat referral fee to an unlicensed person would also need scrutiny.
Traps that cost marks
Assuming a regular P&C license is enough; sharing surplus lines commission with an unlicensed producer; commingling premium; failing to maintain the bond; and misrepresenting the insurer’s regulatory status.