When the regular store does not carry what you need, you go to a specialty shop. Surplus lines are the specialty shop of insurance: coverage from insurers that are not licensed (nonadmitted) in the state, used for unusual or hard-to-place risks the admitted market will not write.
Two outline definitions to know:
An excess and surplus lines insurer writes standard coverages in a state where the insurer is unlicensed. The risks it takes on are often non-standard.
A standard market insurer is an admitted insurer that offers rates for insurance coverage to insureds who have an average or better than average loss exposure.
Before a risk may go to a nonadmitted insurer (§1763):
- The coverage must be unobtainable from admitted insurers actually writing that type of insurance, and the surplus line broker must make sure a diligent search was done.
- The standardized form is prima facie evidence of that search if it shows three such admitted insurers declined the risk, or that fewer than three write it.
- The broker reports the placement to the Commissioner or the Commissioner's designee within 60 days.
A placement generally cannot be made just to get a lower rate than an admitted insurer would accept.
Remember the trade-off: the insured gets coverage the admitted market would not provide, but the required notice warns that the nonadmitted insurer is not subject to California's solvency regulation and is outside the state's guarantee funds (§1764.1).