Unauthorized Insurer (Surplus Lines) — How White List States Work

Key takeaways
* An “unauthorized insurer” (also called a non‑admitted insurer) is not licensed in the insured’s state but may be licensed in its home state and able to sell surplus lines coverage.
* “White list states” permit licensed (admitted) insurers or producers to place specific risks with non‑admitted insurers when coverage is unavailable from the admitted market.
* Surplus lines insurance covers unusual, high‑risk, or specialized exposures that admitted insurers decline. It often offers greater underwriting flexibility but fewer consumer protections and can be more expensive.

What is an unauthorized insurer?

An unauthorized insurer, or non‑admitted insurer, is an insurance company that is not licensed in the state where the insured is located. These insurers often operate in the surplus lines (also called specialty or excess lines) market to provide coverage for risks that admitted insurers will not accept.

Being non‑admitted does not mean the insurer is illegal or incapable—it often reflects a business choice to operate under surplus lines rules rather than seek licensing in every state. Non‑admitted insurers are typically subject to regulation in their domiciliary state but are not subject to the same rate and form regulations imposed by the insured’s state.

What are white list states?

White list states maintain an approved list of non‑admitted insurers that admitted insurers and surplus lines brokers can use to place coverage. In those states, surplus lines placement is allowed when:
* The risk cannot be placed with admitted insurers, and
* Placement follows the state’s surplus lines procedures (such as diligence requirements and reporting).

Each white list state may specify which non‑admitted insurers are acceptable and set rules for how surplus lines transactions must be documented and taxed.

How surplus lines insurance works

Surplus lines insurance fills gaps when coverage is unavailable from licensed, admitted carriers. Typical characteristics:
* Covers specialized, unusual, or high‑severity risks (e.g., unique commercial liabilities, hard‑to‑place property, certain catastrophe exposures).
* Must generally be procured through a licensed surplus lines broker or producer who demonstrates that admitted market coverage was unavailable.
* The non‑admitted insurer must be eligible under the state’s rules (often included on a white list) and usually licensed in its home state.
* Surplus lines policies are not bound by the insured state’s rate and form regulations, providing underwriters more flexibility.

Common consumer example: flood insurance alternatives. Some surplus lines markets (including Lloyd’s syndicates) offer flood coverage as an alternative to government programs like FEMA when individuals or businesses need options not available or affordable in the admitted market.

Licensing, regulation, and consumer protections

• Surplus lines brokers/producers: Agents must hold a surplus lines license to place non‑admitted coverage and must follow placement, filing, and tax procedures required by the state.
• Reduced consumer protections: Non‑admitted insurers are not subject to the insured state’s guarantee funds or certain market conduct regulations, so policyholders may have less protection if the insurer becomes insolvent.
• Market flexibility: Non‑admitted insurers can offer tailored terms and prices for unique exposures that admitted carriers decline.

Pros and cons

Pros
* Access to coverage for unusual or high‑risk exposures.
* Greater underwriting flexibility and tailored policy terms.
* Can be a necessary option when admitted carriers are unwilling to insure.

Cons
* Potentially higher premiums.
* Fewer regulatory protections and no access to state guaranty funds in many cases.
* Requires surplus lines broker and additional administrative steps (diligence proof, filings, taxes).

Examples of surplus lines participants

Large specialty insurers and global underwriters often operate in the surplus lines market, such as Lloyd’s syndicates and several major specialty carriers. These firms provide coverage for complex commercial risks and catastrophes that standard carriers may avoid.

How to proceed if considering surplus lines coverage

• Ask your broker why coverage cannot be placed with admitted carriers and request documentation of market search/diligence.
• Confirm the broker is licensed to place surplus lines and follows state filing/tax requirements.
• Compare coverage terms and exclusions carefully—surplus lines policies may differ significantly from standard policies.
• Consider the insurer’s financial strength and whether state guaranty protections apply.

Conclusion
Unauthorized or non‑admitted insurers play a vital role by offering surplus lines coverage for risks that admitted carriers will not accept. White list states facilitate this market by designating approved non‑admitted insurers and setting placement rules. While surplus lines expand access to necessary coverage, they come with tradeoffs in cost and regulatory protection that buyers should understand before purchasing.