South Dakota Crop Insurance Practice Exam

What does surplus lines insurance refer to?

1. Insurance sold by unauthorized companies

2. Insurance coverage for high-risk individuals

3. Insurance companies authorized to sell regular policies

4. Insurance sold by any licensed broker

The correct answer is: Insurance sold by unauthorized companies

Surplus lines insurance refers specifically to coverage that is sold by unauthorized or non-admitted insurance companies. These companies are not licensed in the state where the insurance is being sold but are allowed to provide insurance when a licensed insurer cannot or will not underwrite that particular type of risk. This typically occurs for high-risk or specialized insurance needs that standard insurance companies may avoid due to the potential for significant losses. The definition of surplus lines is important because it indicates that this type of insurance can be utilized to meet specific coverage requirements that might not otherwise be available through traditional market channels. It also requires that the agent or broker selling the policy is licensed and follows specific regulations governing surplus lines. This distinction is essential in the insurance landscape, as it provides necessary coverage options where traditional carriers may be unable or unwilling to step in.