What does the "disclosure of coverage" requirement entail in surplus lines?

The "disclosure of coverage" requirement in surplus lines emphasizes the importance of transparency regarding the risks associated with obtaining surplus lines insurance. Surplus lines are often utilized for insuring unique or high-risk situations that may not be covered by standard insurance policies. Therefore, brokers have an obligation to thoroughly inform their clients about the potential risks involved with these types of insurance products.

By ensuring that clients are aware of the risks, brokers help them make informed decisions regarding their insurance needs. This transparency is crucial because surplus lines policies can sometimes contain exclusions or limitations that may not be present in more traditional insurance options. Understanding these risks empowers clients to consider whether the surplus lines policy aligns with their risk tolerance and coverage needs.

The other options do not accurately reflect the essence of the "disclosure of coverage" requirement. While informing clients about regulatory requirements or providing refunds may be part of broader best practices, they do not capture the specific focus on communicating the risks inherent in surplus lines insurance.