Surplus Lines Insurance

Written by: Will Bond

Last updated:

Are you looking to advance your career in the insurance industry? Obtaining a Surplus Lines license is a great way to open doors to new opportunities and specialized markets.

In this detailed Surplus Lines Insurance guide, we will cover everything you need to know about acquiring this license, from the qualifications you must meet to the specific steps required to get started.

Whether you’re a seasoned insurance professional or relatively new to the field, this guide will provide you with the essential information to navigate the surplus lines licensing process and enhance your career prospects.

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What Is Surplus Lines Insurance

Surplus lines insurance refers to an alternative category of policies that provide property and casualty coverage for risks that the standard market is unwilling to cover.

Unlike the vast majority of insurance lines, you won’t need to be licensed in a state in order to sell surplus lines insurance within it. However, you will need to obtain a license in the state you’ll be based in.

Examples of Surplus Lines Insurance

In general, surplus lines insurance is used to cover three main types of risks that the standard insurance market refuses to cover, including:

  • Uncommon Risks: Which involve strange and uncommon underwriting criteria that make it risky and difficult to offer coverage (e.g., a highly-valued, antique sports car)
  • Unique Risks: Where standard insurance providers don’t have an available policy form or rate because of the novelty of the risk (e.g., a business operating in an emerging industry, such as a drone delivery service)
  • Capacity Risks: Where the required insurance coverage exceeds the limits that most standard insurers are willing to provide due to the sheer scale and potential liabilities involved (e.g., a large construction project such as a skyscraper)

Surplus Lines vs Admitted Insurance

Standard insurance carriers, also known as admitted carriers, are carriers that must comply with state regulations regarding pricing and the types of risks they can cover.

In contrast, surplus lines carriers, which are sometimes referred to as non-admitted or unlicensed carriers, are not bound by these same state regulations. This allows them to insure higher-risk ventures that admitted carriers might avoid.

Despite being called “non-admitted”, surplus lines insurance policies are still legitimate and regulated, just under different guidelines than those for admitted carriers. In particular, surplus lines insurance fills the gap left by standard insurers by providing coverage for unusual or high-risk situations that they won’t handle.

This flexibility comes with the drawback of less protection for the policyholder, as state guarantee funds do not back surplus line insurers, unlike admitted insurance carriers. This means your clients won’t be able to rely on a state guaranty fund for claim payments if you go bankrupt.

How to Become a Surplus Lines Broker

Now that we’ve covered what surplus lines insurance is, and how it differs from “standard” insurance lines, we’re going to break down how you can get licensed in five simple steps, regardless of where you’re based.

Be aware that this is a general overview of this process — while the following overarching steps will always apply, the specifics of their application in practice may vary depending on the state in question.

Step 1: Hold an Active P&C Producer License

It’s a common requirement in many states for applicants to have already obtained, or be in the process of applying for an active Property and Casualty (P&C) producer license to be able to obtain a surplus lines license.

This is to ensure that you already possess the foundational understanding of P&C insurance principles and regulations necessary to deal with the more complex and specialized surplus lines market.

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Step 2: Pass Your State’s Surplus Lines Exam

After this, the next mandatory step will be to pass your state’s surplus lines exam. This is typically shorter than most state insurance exams, usually featuring between 50 to 100 questions and lasting between one to one and a half hours.

Unlike the exams of many other insurance lines, surplus lines insurance exams are typically only made up of one part, which will assess you on both:

  • The common rules and regulations applying to all insurance lines in your state
  • Your state’s specific rules and regulations regarding surplus lines insurance

To pass, you’ll generally need an overall score of at least 70%, although some states — like Hawaii — may use a scaled scoring system with different criteria.

Once you pass, it’s important to move quickly with the rest of the licensing process, as exam scores may expire after a certain period in states like New Jersey. This could require you to retake the exam and reapply for your license if you delay.

Note: Be sure to check the specific insurance licensing regulations in your state for detailed information. For a simplified overview, you can refer to our Insurance License Exam guide.

Step 3: Meet Any Other Additional Requirements

Beyond just passing your state’s surplus lines insurance exam, you’ll also likely be required to meet several additional requirements before you can qualify for a license.

One of the most common requirements across nearly all states is the need for a fingerprinting and background check. While a minority of states (such as Indiana and Illinois) may not require this, you’ll typically need to provide a full set of fingerprints so that state and federal background checks can be conducted.

Once completed, the fingerprinting service in question (i.e., Fieldprint or IdentoGO) sends a detailed report to your state’s Department of Insurance, which will then determine whether or not you’re eligible to get licensed in that state.

Additionally, many states also impose their own specific licensing requirements for surplus lines brokers on top of this. For example, Alabama requires applicants to have a high school diploma and three years of recent full-time experience in the property and casualty (P&C) field, as outlined in Section 482-1-036-.03 of the Alabama Administrative Code.

Similarly, other states, like Florida and Tennessee, have unique eligibility criteria that candidates must fulfill to apply for their license.

Step 4: Submit Your Application

With all other licensing requirements out of the way, the only thing left to do is to submit a surplus lines license application in the state you plan to be based in.

In almost all states, this application is submitted through the National Insurance Producer Registry (NIPR), though in some you may be able to do so through Sircon as well. Regardless of how you choose to submit it, you’ll often need to pay a filing fee of around $200 — though this fee varies from state to state.

If your application is successful, you should hear back from your state’s Department of Insurance shortly with an email containing your new National Producer Number (NPN).

While the time it takes for your application to be processed will be highly dependent on the state you apply in, you can generally expect it to take between a couple of business days and a few weeks.

Note: Although we’ve included this as the final step in our article (as it’s typically the case in most states), there are exceptions where applications must be submitted much earlier on, such as in Florida and Michigan.

Surplus Lines Insurance FAQ

What is surplus insurance?

Surplus lines insurance includes coverage against unique or high-risk situations that standard insurers, known as admitted carriers, won’t cover. This type of insurance is offered by non-admitted insurers, which are not bound by state regulations governing rates and policy forms, allowing them to insure unconventional or higher-risk clients. You can find out more in our Surplus Lines Insurance guide.

What are the disadvantages of surplus lines insurance?

Surplus line insurance has several disadvantages. Firstly, these policies are typically much riskier to offer as the liabilities they protect against can often be far more financially damaging. Additionally, surplus lines policies do not benefit from state guarantee funds, which protect consumers if an insurer becomes insolvent.

What is the purpose of a surplus lines broker?

A licensed surplus lines broker acts as an intermediary between clients and a surplus lines insurer. Their primary purpose is to help clients obtain insurance coverage for risks that standard insurers are unwilling to cover. Surplus lines insurers have specialized knowledge of the surplus lines market and can navigate its complexities to find appropriate and effective insurance solutions for their clients.

What is the difference between surplus and admitted insurance?

The main difference between the surplus lines insurance market and the admitted market lies in regulatory oversight. The latter is offered by admitted insurance companies licensed and regulated by state authorities, adhering to state-imposed rules on rates and policy terms. Excess and surplus lines coverage, however, is provided by non-admitted insurers who are not subject to these state regulations, allowing them greater flexibility to insure higher-risk or unusual situations.

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