Surplus Lines Placement, Diligent Effort, and Broker Operations
The placement sequence
The exam tests an ordered process, not just definitions: (1) determine the risk is genuinely hard to place; (2) make and document a diligent effort in the admitted market; (3) select an eligible surplus lines insurer; (4) bind and disclose non-admitted status to the insured; (5) deliver the policy; (6) file the policy data with the Surplus Lines Stamping Office of Texas (SLSOT) within 30 days of issuance or effective date; (7) remit premium tax and the stamping fee; (8) retain records.
Diligent effort. Texas rules require a documented, objective search of the admitted market - in practice, submission to and declination from at least three authorized insurers that write the class, or all authorized insurers writing it if fewer than three exist. The documentation must be contemporaneous with binding; reconstructing it after a loss is the single most common finding in TDI and SLSOT reviews. Certain classes and exempt commercial purchasers are excused from the search by rule - but the file must show the exemption applies.
Operations. Endorsements, cancellations, return premiums, and policy changes are filed with the stamping office the same way the original policy is. Commissions come from the insurer; the surplus lines agent may not act as an agent of an ineligible insurer or bind coverage with one. Binders carry the same disclosure obligation as the policy.
Traps: counting declinations from insurers who do not write the class; assuming a declination on price alone satisfies the requirement; forgetting that a renewal needs its own documented search; assuming a retail producer's file substitutes for the surplus lines agent's record.
Rule of thumb: "Three or all, before bind." Three declinations (or all writers of the class), dated before the bind, in the file.