Wholesale Insurance Distribution
The channel where surplus lines brokers act as intermediaries between retail agents and specialty or non-admitted markets retail agents cannot directly access.
FAQs
- When is a risk required to go through the wholesale surplus lines market?
- Surplus lines placement is permitted (and in most states required to follow a diligent search process) when a risk cannot be placed in the state's admitted market at appropriate terms or at all. Declinations from admitted markets—formal rejections or substantive adverse terms—support surplus lines eligibility. Risks with unusual characteristics, poor loss history, or in classes where admitted markets have withdrawn are common candidates.
- What is the diligent search requirement in surplus lines?
- Before placing with a non-admitted carrier, most states require the retail or surplus lines broker to document that admitted markets were approached and either declined or offered coverage at terms materially less favorable. The specific number of declinations required varies by state (typically 3 admitted carriers). Some states have 'export lists' of risk classes that are exempt from diligent search because admitted market availability is known to be inadequate.
- How does the wholesale commission structure work?
- Carriers or MGAs pay a wholesale commission to the surplus lines broker for placing business with them. The retail agent also earns a commission, which may be embedded in the wholesale rate or added on top. Total distribution costs (wholesale commission plus retail commission) for E&S placements are typically 15–25% of premium, higher than admitted market placements. The additional cost reflects the expertise and market access the wholesale channel provides.
Related Terms
Non-Admitted Carrier
An insurer not licensed in a given state but eligible on a surplus lines basis through licensed brokers, with fewer consumer protections than admitted carriers.
Alien Insurer
A non-US insurance company eligible to write surplus lines business in US states, typically through Lloyd's or similar international markets.
Surplus Lines Compliance
Regulatory requirements governing non-admitted insurance placement—diligent search documentation, stamping office filings, disclosure, and tax remittance.
Managing General Underwriter (MGU)
An entity with comprehensive delegated underwriting authority from carriers, including binding, policy issuance, premium collection, and often claims handling.