DC Surplus Lines Insurance 1 — Questions and Answers
Question 1: What is 'surplus lines' insurance in DC?
- Insurance sold by insurers with more capital than required by DC
- Insurance placed with non-admitted insurers for risks that cannot be placed in the admitted market (Correct answer)
- Insurance sold through the federal government for high-risk businesses
- Reinsurance purchased by DC admitted insurers
Correct answer: Insurance placed with non-admitted insurers for risks that cannot be placed in the admitted market
Surplus lines insurance is coverage placed with insurers not licensed (admitted) in DC for risks that admitted carriers are unwilling or unable to insure.
Non-admitted (surplus lines) insurers are not licensed in DC but are eligible to write business through licensed surplus lines brokers. They are used when the standard admitted market declines a risk. While they have more pricing flexibility, DC policyholders have less regulatory protection (no guaranty fund coverage).
Question 2: Who is legally authorized to place surplus lines coverage in DC?
- Any DC-licensed insurance producer
- Only a DC-licensed surplus lines broker with surplus lines authority (Correct answer)
- The insured may place coverage directly with a non-admitted insurer
- Only a DC-domiciled managing general agent (MGA)
Correct answer: Only a DC-licensed surplus lines broker with surplus lines authority
Only a producer holding a DC surplus lines broker license may legally place coverage with non-admitted insurers in the District.
DC law requires a surplus lines broker license to place coverage with non-admitted insurers. The broker must first make a diligent effort (typically documented declinations from three admitted carriers) to place the risk in the admitted market. The surplus lines broker is responsible for paying the surplus lines tax.
Question 3: Before placing coverage in the surplus lines market in DC, a broker must demonstrate which of the following?
- That the risk is a new business with no insurance history
- A diligent search—typically three declinations from admitted carriers—showing the risk cannot be placed in the admitted market (Correct answer)
- That the insured has agreed to waive guaranty association protections
- That the non-admitted insurer is licensed in the insured's home state
Correct answer: A diligent search—typically three declinations from admitted carriers—showing the risk cannot be placed in the admitted market
A diligent search requirement (usually three admitted carrier declinations) must be documented before accessing the surplus lines market.
DC's surplus lines law requires the producing broker to conduct a diligent effort to place coverage in the admitted market before going to a non-admitted insurer. This is documented with declination letters. The requirement protects consumers by ensuring admitted market options are exhausted first.
Question 4: A DC surplus lines policy does NOT benefit from which protection available to admitted market policyholders?
- The right to file a complaint with DISB
- DC Insurance Guaranty Association protection if the insurer becomes insolvent (Correct answer)
- The right to receive a copy of the policy
- The right to cancel the policy within a free-look period
Correct answer: DC Insurance Guaranty Association protection if the insurer becomes insolvent
Surplus lines policyholders are not covered by the DC Insurance Guaranty Association, which only protects insureds of admitted (licensed) carriers.
The DC Insurance Guaranty Association covers claims when an admitted insurer becomes insolvent. Because surplus lines insurers are non-admitted, their policyholders have no guaranty fund protection. This is a key risk disclosure DC surplus lines brokers must make to insureds.
Question 5: What is the DC surplus lines premium tax rate, and who is responsible for remitting it?
- 3% of gross premium; remitted by the non-admitted insurer directly to DISB
- 3% of gross premium; remitted by the DC surplus lines broker (Correct answer)
- 5% of gross premium; remitted by the insured
- 1% of gross premium; remitted by the admitted insurer that declined the risk
Correct answer: 3% of gross premium; remitted by the DC surplus lines broker
DC imposes a 3% surplus lines tax on gross premium, which the licensed surplus lines broker is responsible for remitting to DISB.
DC's surplus lines tax is 3% of the gross premium. The licensed surplus lines broker must collect this tax from the insured and remit it to DISB, along with required filings. Failure to remit the tax can result in disciplinary action against the broker's license.
Question 6: Which type of DC risk is most likely to require surplus lines coverage?
- A standard single-family home in a low-risk neighborhood
- A vacant commercial building with prior fire losses that admitted carriers have declined (Correct answer)
- A new DC restaurant with no prior claims history
- A DC government employee seeking individual health coverage
Correct answer: A vacant commercial building with prior fire losses that admitted carriers have declined
Hard-to-place risks like vacant buildings with prior fire losses—declined by multiple admitted carriers—are classic surplus lines placements.
Admitted insurers use conservative underwriting guidelines and may decline risks like vacant buildings (especially those with prior losses). The surplus lines market provides coverage options for non-standard risks at market-negotiated rates. It is also used for unique risks like liquor liability, cyber, and specialty construction.
DC Surplus Lines Insurance 1
What is 'surplus lines' insurance in DC?