What must occur before placing coverage with a surplus lines insurer?

Before coverage can be placed with a surplus lines insurer, it is required that the risk must be declined by at least one admitted carrier. This is a fundamental criterion for using surplus lines insurance. Surplus lines insurers are typically utilized for risks that standard or admitted carriers are unwilling or unable to insure due to their unique, high-risk, or unusual nature.

The necessity for a prior decline from an admitted carrier serves multiple purposes. It helps ensure that surplus lines are used appropriately and only for risks that the regular insurance market cannot accommodate. This process protects consumers and supports the integrity of the insurance market by ensuring that admitted carriers are given the first opportunity to offer coverage before resorting to surplus lines.

In understanding the other options, assessing the risk by at least three admitted carriers may be part of a broader risk management strategy, but it is not a formal requirement for surplus lines placement. Placing the risk with any insurer of the broker's choice disregards the regulatory framework governing surplus lines. Pre-approval by regulatory authorities is not a standard condition for placing coverage; instead, it is the broker's responsibility to demonstrate that the risk has been declined by an admitted carrier. Thus, the requirement for decline from an admitted insurer is a critical step in the surplus lines process