TX Surplus Lines cheat sheet

Insurance transfers specified loss exposures from an insured to an insurer in exchange for premium; it does not eliminate the possibility of loss.

Insurable interest requires a lawful economic relationship to the subject matter such that the insured would suffer financial loss from damage or loss.

The principle of indemnity restores the insured to approximately the pre-loss financial position and generally prevents recovery of a profit.

Utmost good faith requires applicants and insureds to disclose material facts; material misrepresentation can affect or void coverage.

Adverse selection is the tendency of higher-risk insureds to seek coverage more readily than lower-risk insureds; underwriting and rating manage it.

Moral hazard is increased loss potential caused by insured behavior because insurance exists; morale hazard is carelessness or indifference.

Risk management techniques include avoidance, retention, reduction, and transfer; insurance is a transfer technique.

Reinsurance transfers part of an insurer's risk to a reinsurer; it does not change the original insured's policy contract.

Admitted insurers are authorized and regulated by Texas; surplus lines insurers are unauthorized but eligible insurers used when admitted market coverage is unavailable.

The Texas Department of Insurance regulates insurance in Texas, licenses insurers and agents, reviews forms and rates, and enforces the Insurance Code.

The Texas Commissioner of Insurance is appointed by the Governor and administers TDI under the Insurance Code.

Licensees must comply with Texas Insurance Code requirements and TDI rules, including licensing, appointment, and conduct standards.

Continuing education is required for licensed insurance professionals to maintain an active license, and ethics hours are part of the requirement.

Unfair trade practices include misrepresentation, false advertising, coercion, unfair discrimination, rebating, and twisting.

Agents and brokers holding premium funds owe fiduciary duties; premium funds must not be commingled with personal or business funds.

Certificates of insurance summarize existing coverage and do not amend, extend, or create coverage under the policy.

TDI may impose penalties, including fines and license suspension or revocation, for violations of insurance laws and rules.

Licensees must maintain records for the period required by Texas law and TDI rules and make them available for examination.

Texas Insurance Code Chapter 981 governs surplus lines insurance, and 28 Texas Administrative Code Chapter 15 contains related implementing rules.

Surplus lines insurance is coverage procured from an eligible unauthorized insurer when admitted insurers are not available to write the risk.

A surplus lines broker must hold a Texas surplus lines license; only a properly licensed broker may place surplus lines coverage.

The insurer must appear on the TDI list of eligible surplus lines insurers before the broker places coverage with it.

An eligible surplus lines insurer is unauthorized in Texas but meets financial, trust, and reporting requirements set by law and rule.

The broker must make and document a diligent effort to place coverage with admitted insurers before using a surplus lines insurer.

Written disclosure must inform the insured that the insurer is not authorized in Texas and that the policy is not protected by the Texas guaranty fund.

Prohibited conduct includes placing coverage with an ineligible insurer, misrepresenting admitted status, and charging unauthorized fees.

Surplus lines policies may use forms and rates not filed for admitted insurers, but placement must still comply with Chapter 981 and disclosure rules.

The placement sequence is to identify the risk, check the admitted market, document declinations, select an eligible insurer, disclose, bind, issue, report, and retain records.

Diligent effort documentation should identify each admitted insurer contacted, the date, the coverage requested, and the reason coverage was declined.

A single declination from an admitted insurer does not by itself establish that the admitted market is unavailable for the class of business.

The broker must confirm that the selected insurer is on the TDI eligible surplus lines insurer list at the time of placement.

Binding authority must come from the insurer and be exercised within its terms; the broker cannot create coverage beyond that authority.

The surplus lines placement file should contain the application, declinations, disclosure, policy, endorsements, premium records, and correspondence.

Endorsements and cancellations must be reported to the stamping office and reflected in premium tax and fee calculations.

A surplus lines broker may not place a risk with an unauthorized insurer that is not eligible under Texas law.

Texas imposes surplus lines premium tax at 4.85% of gross surplus lines premium.

The surplus lines broker collects the premium tax from the insured and remits it as required by Texas law and rules.

The stamping office fee is separate from the surplus lines premium tax and is set by rule for stamping office services.

Surplus lines policy data must be filed with the Surplus Lines Stamping Office of Texas as required by law and rule.

Reports to the stamping office include identifying policy information, insurer, premium, tax, and fee data.

Premium tax reports and payments must be filed timely; late filing or payment can result in penalties and interest.

Return premiums from cancellations require corresponding adjustments to premium tax and stamping office fee calculations.

Surplus lines brokers must retain placement, premium, tax, and reporting records and make them available for audit for the required period.