A manufacturer cannot find pollution coverage from any licensed carrier. It must reach outside the admitted market. Different regulatory rules govern every door it can knock on.
A non-admitted insurer holds no license in the state where the risk sits. It cannot solicit there. Buyers reach it through two doors. The main door is surplus lines: a licensed surplus lines broker places the coverage for hard-to-insure risks the admitted market rejects. The second door is direct procurement, covered below.
Two safeguards apply. First, the broker performs a diligent search, usually documenting three declinations from admitted carriers, proving the coverage was unavailable. Second, the state collects a surplus lines premium tax the broker remits.
KEY: The NRRA made the insured's home state the sole regulator and sole taxing authority for a surplus lines placement. That ended multi-state tax allocation fights.
TRAP: An exempt commercial purchaser, a sophisticated buyer meeting size thresholds using a qualified risk manager, may skip the diligent search only after two steps.
Common mistakes
- Treating the surplus lines broker as the only door. An insured may also independently procure coverage by buying directly from the non-admitted insurer outside its state (Todd Shipyards). The carrier still cannot solicit in-state.
- Assuming three declinations are always required. An exempt commercial purchaser who requests non-admitted placement in writing skips the search. So do export-list coverages and the few states that dropped the search.
- Allocating surplus lines tax across states. The NRRA gives the home state the entire premium tax.
Bottom line
- A non-admitted (unlicensed) insurer cannot solicit in the state. Buyers reach it two ways: a surplus lines broker places the coverage, or the insured independently procures it out of state.
- Surplus lines placement requires a diligent search, typically three declinations from admitted carriers. Waivers: an exempt commercial purchaser who asks in writing, an export-list coverage, or a state that dropped the search.
- The Nonadmitted and Reinsurance Reform Act (NRRA, part of Dodd-Frank 2010) gives the insured's home state sole authority to regulate and tax a surplus lines placement.
- Risk retention groups (RRGs) exist under the federal Liability Risk Retention Act (LRRA); they write only liability, are owned by their insureds, and are chartered in one state but operate nationwide.
Exam shortcut
For any specialty-market question, first ask "does this entity bear risk?" RRGs and captives do; RPGs and brokers do not. Two doors into the non-admitted market: a surplus lines broker (diligent search, broker remits the tax) or direct procurement (insured buys out of state and owes the tax itself). Tie every surplus lines tax/regulation question to the NRRA: home state, single authority, no allocation.
The full lesson (about 1,532 words, 10 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- A4
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