TX Surplus Lines key terms

Coverage written by an insurer that is not authorized to transact that line of business in Texas, placed through a specially licensed agent when the full amount of coverage cannot be obtained from authorized, admitted insurers.

A nonadmitted insurer that satisfies Texas financial and domicile requirements, including being authorized in its home jurisdiction and appearing on the list maintained by the Texas Department of Insurance, and therefore may lawfully accept Texas surplus lines placements.

An insurer that does not hold a Texas certificate of authority for the line of business being written. Texas law permits such an insurer to write only through the surplus lines process and only if it qualifies as eligible.

A Texas-licensed agent holding a surplus lines license who may place coverage with eligible nonadmitted insurers and who is responsible for documenting diligent effort, delivering disclosures, paying premium tax, and filing with the stamping office.

The chapter of the Texas Insurance Code that governs surplus lines insurance, covering insurer eligibility, diligent effort, agent duties, disclosure to insureds, premium tax obligations, and enforcement authority.

Obtaining coverage directly from a nonadmitted insurer without using a licensed Texas surplus lines agent. Texas imposes premium tax, reporting, and other duties on the insured in these transactions.

An insurer organized under the laws of a country outside the United States. An alien insurer may be used in Texas surplus lines only if it meets the statutory trust fund and financial requirements for eligibility.

An insurer domiciled in another state or U.S. territory rather than in Texas. The label describes domicile only and does not by itself indicate whether the insurer is admitted or nonadmitted in Texas.

The documented search by a surplus lines agent among authorized insurers to place the full amount of coverage requested, showing that admitted markets declined or offered inadequate terms before the risk is placed with a nonadmitted insurer.

A refusal or inability by an authorized insurer to write the risk as requested. Signed declinations are the usual evidence that a diligent effort was made before a surplus lines placement.

The written record kept in the placement file showing which authorized insurers were approached, the dates, the coverage requested, and why each declined or offered insufficient terms, often using the standard state form.

A written statement, signed by the insured before placement, explaining that the insurer is not authorized in Texas, that the policy is not protected by the state guaranty fund, and any other warnings required by statute or rule.

The state mechanism that pays covered claims of policyholders of insolvent authorized insurers. Surplus lines policies are excluded, which is the reason insureds must receive a written disclosure notice.

The statutorily created office that reviews and stamps surplus lines transactions, collects premium and fee data, reports to the Texas Department of Insurance, and supports regulation of the surplus lines market.

A charge set by rule and collected on each surplus lines transaction, paid to the stamping office to fund its operations. It is separate from premium and from premium tax.

A tax imposed on gross surplus lines premium for Texas risks, currently at the rate of 4.85 percent, remitted by the surplus lines agent or, in independent procurement, by the insured. It replaces the premium taxes paid by authorized insurers.

The gross premium charged for a surplus lines policy, including endorsements and other amounts treated as premium by rule, used as the base for computing both premium tax and stamping fees.

The method for determining how much premium is subject to Texas tax when a policy covers property or exposures located in more than one state, applying the statutory rules for where a risk is situated.

The duty of the surplus lines agent to retain policy documents, diligent effort evidence, disclosure notices, and financial records for the period required by statute and rule, and to make them available on request to regulators.

The periodic filing in which the surplus lines agent (or an independently procuring insured) reports Texas taxable premium and remits the tax due for the reporting period, with penalties and interest for late or incorrect filings.

Premium refunded to the insured after cancellation, reduction, or endorsement of a policy. It reduces the taxable premium base and must be reflected in tax and stamping office reporting.

The license issued by the Texas Department of Insurance that allows an insurer to transact specified lines of insurance in the state. An insurer without one for the relevant line is nonadmitted.

The state agency that regulates insurers and agents, licenses surplus lines agents, maintains the list of eligible surplus lines insurers, adopts rules, and enforces the Texas Insurance Code.

The official who heads the Texas Department of Insurance, adopts rules implementing the Insurance Code, and has authority to investigate and take disciplinary action against licensees.

The credential issued by the Texas Department of Insurance allowing a person to solicit, negotiate, or sell insurance. A separate surplus lines authorization is required to place business with nonadmitted insurers.

Conduct prohibited by Texas insurance law, such as misrepresentation of policy terms, false advertising, rebating, or unfair claim settlement. These prohibitions apply to surplus lines transactions as well.

Intentional deception for the purpose of obtaining an insurance benefit or advantage, such as false statements on an application or a staged claim. It is a crime and is reportable to state authorities.

The transaction of insurance business in Texas by a person or insurer that lacks authority to do so, which the Insurance Code prohibits and punishes with civil and criminal penalties and administrative action.

A financial stake in the person or property insured, such that the insured gains from its continued existence or suffers loss from its damage, destruction, or death.

The principle that an insurance payment should restore the insured to roughly the financial position held before the loss, without creating a profit from the loss itself.

The tendency for higher-risk insureds to seek out or keep coverage more actively than lower-risk insureds, forcing insurers to price carefully and underwrite selectively to avoid excessive losses.

The maximum amount of risk an insurer is willing and financially able to accept. Shortages of capacity in the admitted market are a common reason risks move to surplus lines.

Insurance purchased by an insurer to shift part of its risk to another insurer, thereby protecting its capital and expanding the amount of business it can write.

The dollar amount of loss an insured must bear before insurance responds. Large retentions are common in surplus lines programs written for unusual or high-hazard risks.

A liability policy that responds to claims first made against the insured during the policy period, regardless of when the injury or damage occurred, subject to any retroactive date stated in the policy.

A liability policy that responds to injury or damage that takes place during the policy period, no matter how much later the claim is actually filed against the insured.

Temporary written evidence of coverage issued before the policy is delivered. In surplus lines the binder should identify the nonadmitted insurer and the limitations that apply to the coverage.

The licensed agent who deals directly with the insured and refers a risk to a surplus lines agent when authorized insurers will not provide the requested coverage; the producing agent typically supplies the declinations.