Glossary of Insurance Terms

An admitted carrier or standard carrier is an insurance company that has received a license from the state department of insurance for the authority to write specific lines of insurance. These companies are also bound by rate and form regulations and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due to their policyholders.

State required forms, signed by the agent and/or insured, summarizing the effort made to find coverage with an admitted insured. Some state affidavits describe the risks associated with SL/Non-Admitted carriers. These forms are filed with the states.

An office where insurance is sold. It may be directed toward property and liability insurance, life and health insurance, or both. Also, it might be an independent organization or an insurer subsidiary.

A charge or flat fee per policy charged by the agency that does not change with the size of the policy.

An insurance agent is a person or organization who/that solicits, negotiates, or instigates insurance contracts on behalf of an insurer and can be independent or an employee of the insurer. Insurance agents are the legal representatives of insurers, rather than policyholders, with the right to perform certain acts on behalf of the insurers they represent, such as to bind coverage.

An insurer domiciled in and licensed under the laws of a country outside a given jurisdiction. For example, from a U.S. perspective, a Bermuda insurer would be an alien insurer.

Appointment refers to the authority given to an agent or agency to transact business on behalf of the insurer. This can include binding authority, which allows agents to finalize contracts without prior approval from the insurer. In some states, a formal transaction may be required to establish this authority.

An audit endorsement is derived from a survey of the financial records of a person or organization, typically conducted annually. This process determines exposures, limits, premiums, and other relevant financial metrics. It ensures that the insurance coverage remains adequate and reflects the current risk profile.

An authorized insurer is licensed in a state. The license document is typically called a certificate of authority. As pertaining to surplus line, every state has certain surplus line insurers approved to do business in the non-admitted market or surplus line market in that state. An approved surplus line insurer is considered “unauthorized” because it has not been issued a certificate of authority. However, there are a few states (IL) that will issue a certificate of authority for a surplus line insurer to act as a non-admitted insurer only. For Broker Responsibility states, no non-admitted insurers are approved as this is placed solely under the responsibility of the surplus line broker to determine if the insurer meets the minimum financial requirements per the state statutes.

A binder is a legal agreement issued by an agent or insurer that provides temporary evidence of insurance coverage until a formal policy can be issued. Binders should clearly outline the time limits and designate the insurer responsible for the coverage, ensuring that the insured has immediate protection.

A bordereau is a report that provides premium or loss data related to specific risks. This report is periodically submitted to a reinsurer by ceding insurers or reinsurers, helping to maintain transparency and accuracy in the reinsurance process.

A broker acts as an insurance intermediary who represents the insured rather than the insurer. Unlike independent agents, brokers do not have the authority to bind coverage on behalf of insurers, which means they must work closely with clients to find suitable coverage options.

This term refers to states that do not maintain an official list of eligible surplus line carriers. In these states, brokers are responsible for determining whether a surplus line carrier meets the financial criteria established by state regulations, ensuring that clients receive appropriate coverage.

A carrier is an insurance or reinsurance company that provides coverage or 'carries' the risk associated with insurance policies. Carriers play a crucial role in the insurance market by underwriting risks and managing claims.

A courtesy filing occurs when an agent licensed in a different state submits the taxes due for a surplus lines policy on behalf of another agent. This process allows agents with a resident surplus lines license to assist others, streamlining the filing process and ensuring compliance with state tax regulations.

The declarations page is the front page of an insurance policy that specifies key information such as the named insured, address, policy period, and policy limits. It is also known as the information page and is essential for understanding the specifics of the coverage provided.

Declination refers to the act of rejecting an application for insurance. This can occur for various reasons, including insufficient information or failure to meet underwriting criteria. Understanding declination helps applicants identify areas for improvement in their insurance applications.

The description of risk outlines the type of business being insured and the specific operations involved. This detailed information is crucial for underwriters to assess the risk accurately and determine appropriate coverage options.

Diligent search is a regulatory requirement for surplus lines that establishes that coverage for a risk is unavailable from admitted insurers. This process involves completing an affidavit confirming that an admitted carrier has declined the risk, ensuring compliance with state regulations.

A domestic insurer is one that is admitted by and formed under the laws of the state in which the insurance is written. These insurers are subject to state regulations and provide coverage to local policyholders, contributing to the stability of the insurance market.

An endorsement is a written document that modifies the terms of an insurance policy. It can add, remove, or change coverage, and is essential for ensuring that the policy accurately reflects the insured's needs and circumstances.

Any type of coverage that cannot be placed with an insurer admitted to do business in a certain jurisdiction. Risks placed in the excess/surplus line markets are often sub-standard as respect to adverse loss experience, high risk, unusual, or unable to be placed in the admitted market.

An exclusion is a provision in an insurance policy that eliminates coverage for certain risks or events. Understanding exclusions is vital for policyholders to know what is not covered under their insurance, helping them make informed decisions about their coverage needs.

An insured who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer or the services of a regularly and continuously retained qualified insurance consultant. Generally, this means that the Exempt Commercial Insured is exempt from certain regulatory requirements. *In some states the industrial insured was replaced by the ECP and the requirements may be different. Some states have both.

A compilation of coverages that can be “exported” to non-admitted insurers without first fulfilling the diligent search requirements.

Typically same as policy effective date.

From the U.S. perspective, an insurer domiciled in the United States but outside the state in which the insurance is to be written. In effect, it is a domestic insurer doing business outside of the state in which it is domiciled. See also Alien insurer.

The state in which the insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence; or if 100% of the insured risk is located out of the insured’s principal place of business or residence, then the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.

Insurance procured directly by an insured from a non-admitted carrier without the use of a surplus line broker. IPC coverage is usually obtained by a risk manager of a commercial insured, whereby the commercial insured purchases their own insurance through an in-house risk manager who transacts insurance directly with the surplus line carrier.

These are required Surplus Lines filings submitted to the state. The due date of these filings are dependent on the Policy Effective Date or Endorsement Date.

A general classification of insurance industry business—for example, liability, property, inland marine, errors and ommissions, commercial auto, etc.

Not authorized to sell insurance to an insured, but rather acts as the middleman between the company and the independent agent or agency. An MGA may be given binding authority by an insurer. A broker that has both underwriting and claims authority or reinsurance authority could meet the statutory definition of managing general agent, which triggers additional regulatory compliance obligations.

A trade association of state insurance commissioners that issues model insurance acts that states can adopt. The NAIC accredits states that have enacted specific insurance legislation and demonstrate adequate regulatory oversight over the insurers they license.

A new policy, contract of insurance, written for a specific risk.

An E&S carrier is not required to be licensed by the state, but is allowed to do business in that state. Sometimes, E&S carriers are also referred to as non-admitted or unlicensed carriers; however, E&S carriers are financially stable companies that are regulated in other ways. Excess and Surplus line carriers are not bound by most of the rate and form regulations imposed on standard market companies, allowing them the flexibility to change the coverage offered and the rate charged without time constraints and financial costs associated with the filing process. This is good for both the company and the policyholder. They are not protected by the state guarantee fund.

A company not licensed to do business in a particular state. In case of insolvency, the policyholder or claimant is not covered under the state’s insurance guaranty association.

No state other than the home state of an insured may require any premium tax payment for non-admitted insurance, and the placement of non-admitted insurance shall be subject to the statutory and regulatory requirements solely of the insured’s home state.

A combination policy providing several different coverages. Usually refers to a policy providing both general liability insurance and property insurance. Premium discounts are usually allowed to reflect cost efficiencies.

A written contract of insurance between the insurer and the policyholder. It is typically composed of a declarations page, policy form, and endorsements or riders that amend the policy form.

The date on which an insurance binder or policy goes into effect and from which time protection is provided.

A one-time charge or flat per policy charge that does not change with the size of the policy.

The premium is the amount paid by the policyholder to the insurer for coverage. It is typically paid on a regular basis, such as monthly or annually, and is determined based on various factors, including the level of coverage and the risk profile of the insured.

An endorsement that generates an additional premium due to a policy change endorsement or audit.

A term commonly used for an agent, broker, or other insurance representative who has responsibility for selling insurance.

An insurance policy issued to replace an expiring policy.

Sells insurance to the insured.

An endorsement for the amount due the insured if the actual cost of a policy is less than what the insured has previously paid—for example, if the limits are reduced, the estimated exposure at inception is greater than the audited exposure, or the policy is canceled.

Uncertainty arising from the possible occurrence of given events. (2) The insured or the property to which an insurance policy relates.

A group formed in compliance with the Risk Retention Act of 1986 authorizing a group of insureds engaged in similar businesses or activities to purchase insurance coverage from a commercial insurer. This is in contrast to a risk retention group (RRG), which actually bears the group’s risks rather than obtaining coverage on behalf of group members.

It is very common to find in insurance policies issued by the London market to US policyholders a service of suit clause under which the insurers agree to submit to the jurisdiction of any court of competent jurisdiction in the US.

Surplus lines stamping offices facilitate and encourage compliance with state laws and regulations regarding surplus lines placement. Stamping office expenses are funded by the stamping fee.

Payments made to the states which includes any Surplus Lines Taxes, Stamping Fees, and other services charges. Amounts and/or percentage of SL Taxes, Stamping Fees, and Service Charges vary by state.

Summation of policy details written through a specific reporting period. Types of reports include: Annual, Annual – Zero, Semi-Annual, Semi-Annual Zero, Quarterly, Quarterly – Zero, Monthly, Monthly – Zero.

A “stamp” – verbiage – required by states to be included on an issued surplus lines insurance policy.

Subrogation is the process by which an insurer seeks reimbursement from a third party for a claim it has paid to its insured. This legal right allows insurers to recover costs and helps keep premiums lower for policyholders.

Risks placed with non-admitted insurers.

Is the responsible party that ensures all aspects of the surplus line placement are compliant with specific state regulations. This individual or agency is also responsible for reporting the placement to the applicable state as required by that state’s statutes. The surplus line broker should be very aware of each state’s varied requirements with regard to due diligence, affidavit filings and tax reporting.

State tax associated with the surplus lines premiums; new business, renewals, endorsements, audits.

The business written at Lloyd’s is brought to specialist syndicates, who price and underwrite risk, via brokers and cover holders. Much of the capital available at Lloyd’s is provided on a subscription basis – where Lloyd’s underwriters join together as syndicates and where syndicates join together to underwrite risks and programs. This kind of collaboration, combined with the choice, flexibility, and financial certainty of the market, makes Lloyd’s the world’s leading insurance platform.

A list of syndicates trading within the Lloyds of London market.

Filing error generated from state when incorrect or unmatching data has been received during the filing process.

Agency, Broker or policy fees that are taxable by the Surplus Lines Offices.

Underwriting is the process of evaluating the risk of insuring a client and determining the appropriate premium and coverage terms. Underwriters assess various factors, including the applicant's history and the nature of the risk, to make informed decisions about insurance policies.

Many states provide a list of approved or authorized surplus line carriers for that state; whereby, surplus line business can only be written through one of the carriers listed for exposures in those states. States determine if a carrier is approved or authorized by meeting certain financial criteria. So the ‘White List’ varies by state. A carrier can be approved in one state and not approved in another state or a carrier can be non-admitted in one state and admitted in another.

Does not sell insurance to the insured, but rather to an independent agent or agency, but can also act as a retail agent.

Report sent to Surplus Lines office stating “Zero” – no surplus lines filings for the reported period.