Texas Department of Insurance

Surplus Lines Insurance

(April 2009)

Most of the insurance sold in Texas is offered by insurance companies that are licensed by the Texas Department of Insurance (TDI).  However, Texas-licensed insurers are not always willing to insure every risk.  Some risks, such as a rare art collection or liability coverage for a special event, may be too costly or complex to meet the insurers’ underwriting guidelines.  Texas law recognizes the needs of people with unusual risks by allowing certain companies to sell insurance in the state on a “surplus lines” basis.

To be eligible to do business in Texas, a surplus lines insurer must be licensed in its home state or country to sell the kind of insurance it sells in Texas.  It must also meet other eligibility requirements, including demonstrating that it is financially sound.

You can only obtain surplus lines coverage through a Texas-licensed surplus lines agent.  Agents must pass a special examination to qualify for a surplus lines agent’s license.

Surplus lines agents can place risks with surplus lines insurers only after making a “diligent effort” to find a Texas-licensed company to issue a policy.  If you’re not satisfied with the results of the agent’s search, consider using another agent to attempt to find a Texas-licensed company. 

Beware of Unauthorized Insurers

An unauthorized insurer is a company that is not legally licensed, eligible, or registered to sell insurance in Texas.  Unauthorized insurers often claim to be licensed in another country and sometimes claim to be surplus lines insurers.  Unlike legitimate surplus lines insurers, however, they have not met the requirements to be eligible to sell insurance in Texas.

Before you buy a surplus lines policy, verify that the company is an eligible surplus lines insurer and that the agent is licensed to sell surplus lines policies.  You can verify a surplus lines insurer’s eligibility and an agent’s license status by calling the Texas Department of Insurance (TDI) toll-free Consumer Help Line

1-800-252-3439
463-6515 in Austin

Types of Insurance Written in the Surplus Lines Market

Surplus lines business consists primarily of property and casualty coverages.  These include commercial general liability insurance, fire insurance, mobile home policies, automobile physical damage coverage, and medical malpractice policies. Life insurance and health insurance are generally not sold in the surplus lines market. 

Surplus lines insurers won’t write automobile liability policies.  If you cannot find an automobile insurer willing to write you the basic liability policy required by Texas law, you can purchase coverage through the Texas Automobile Insurance Plan Association (TAIPA).  For more information about TAIPA, call

1-800-580-TAIPA (8247)
444-4441 in Austin
www.taipa.org

State law requires companies selling workers’ compensation insurance to be licensed in Texas.  If an employer purchases workers’ compensation coverage through a surplus lines company or an unauthorized company, the employer loses immunity from lawsuits arising from workplace injuries and also loses certain key legal defenses, such as employee negligence.

Surplus lines insurers will generally have higher premiums because they insure risks that Texas-licensed companies won’t accept. 

Regulation of Surplus Lines Insurers

Surplus lines companies’ rates and policy forms are not subject to TDI review or to most
Texas insurance laws.  This allows surplus lines companies flexibility to provide a market for unusual, large, or hard-to-place risks.

However, TDI does have limited oversight over the surplus lines market by

• licensing and regulating surplus lines agents, who may place business only with eligible surplus lines carriers
• determining whether surplus lines companies are legally eligible to do business in Texas
• maintaining a list of eligible surplus lines companies
• monitoring the financial condition of surplus lines companies. 

Surplus lines companies must be licensed in their home state or country and must comply with those jurisdictions’ requirements, including periodic audits.  Surplus lines companies are also subject to lawsuit in Texas, and their contracts are subject to the same rules of interpretation as other contracts.

Financial Requirements for Surplus Lines Insurers

Surplus lines insurers must have at least $15 million in combined capital and surplus to be eligible to do business in Texas.  (Capital and surplus are a company’s financial cushion against unexpected claims.)

In addition, an insurer based in a foreign country must have a trust fund of at least $5.4 million in a Federal Reserve member bank to protect its U.S. policyholders.

Surplus lines agents can only place your coverage with eligible insurers that meet Texas’ financial requirements.  Additionally, Texas law requires surplus lines agents to make a “reasonable effort” to determine a surplus lines insurer’s financial condition before placing your coverage.

Texas law specifically excludes surplus lines companies from the Texas Property and Casualty Insurance Guaranty Association.  This means that if the surplus lines insurer becomes insolvent, any claims you had could go unpaid.

Required Notice on Policies

Texas law requires agents to list their names and addresses on the surplus lines policies they sell.  Agents must also include a statement that the insurer is not licensed in Texas and that the policy is a surplus lines policy. It must also disclose that TDI does not audit the insurer’s financial solvency and that the insurer is not a member of the Property and Casualty Insurance Guaranty Association. The guaranty association pays claims filed against member companies that become insolvent.

The Surplus Lines Stamping Office of Texas

The Surplus Lines Stamping Office of Texas (SLSOT) is a nonprofit association that helps TDI oversee the surplus lines market.

Surplus lines agents must send SLSOT a copy of each surplus lines insurance policy they sell.  The stamping office then reviews each policy to make sure it was properly placed with an eligible surplus lines company instead of Texas-licensed company.

Surplus lines insurers must submit annual financial statements to TDI and SLSOT.  A company can lose its eligibility if it falls below Texas financial standards.  Historically,  very few surplus lines companies have lost eligibility for financial reasons.  For more information, call SLSOT or visit its website

1-800-449-6394
346-3274 in Austin
www.slsot.org

For More Information or Assistance

For answers to general insurance questions or for information on filing an insurance-related complaint, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website

1-800-252-3439
463-6515 in Austin
www.tdi.state.tx.us

For printed copies of consumer publications, call the 24-hour Publications Order Line

1-800-599-SHOP (7467)
305-7211 in Austin

Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line

1-888-327-8818

To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line

1-877-4FIRE45 (434-7345)

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.

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