Most property and casualty insurance policies in Texas are sold by insurance companies licensed by the Texas Department of Insurance (TDI). These companies make up what is called the “authorized” or “admitted” market. TDI reviews most of the rates and policies that these insurers sell to Texans. These insurers have to follow Texas laws that protect consumers. TDI can also take action against these insurers to protect consumers. In addition, these insurers pay into something called a guaranty association. This association will pay your claims if your insurer becomes insolvent. Insolvent essentially means that the insurer goes bankrupt.
Surplus lines insurers are different. These companies are not licensed in Texas. They usually cover risks that admitted market companies aren’t able to insure or aren’t willing to insure. They can, however, also sell you policies that the admitted market sells, such as homeowners or flood policies.
One of the key differences between the admitted market insurers and surplus lines market insurers is that surplus lines insurers do not have to follow most Texas insurance laws. For example, surplus lines insurers do not have to let TDI review their policies or rates. The companies have to meet some financial requirements, but they do not have to be members of a guaranty association. That means you could be left with an unpaid claim if your surplus lines insurer goes insolvent or bankrupt.
*️⃣ Surplus lines policies must have a notice on them saying that the surplus lines insurer is not licensed in Texas and that the policy is a surplus lines policy.
Surplus lines insurance has an important role to play in the insurance market, and may be the right option for you. You should be aware though, of the differences between the surplus lines insurers and the admitted market insurers. Most importantly, you need to understand that admitted market insurers have more protections for you as a consumer.