Indiana · Personal Lines Sample Interactive Mind Map
Surplus Lines Insurance
A visual breakdown of Surplus Lines Insurance — one of the concepts you can count on seeing on the exam.
The TESTivity Interactive Mind Mapping Graphic we picked for the Indiana Personal Lines sample is Surplus Lines Insurance — and this is a concept you can count on seeing on your pre-licensing exam. Get the structure straight once and those questions turn into free points.
So explore it. Click through, see how the pieces relate, and let the layout do some of the remembering for you.
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Surplus lines is the specialty segment that handles risks the standard admitted market cannot or will not write — with an important consumer-protection trade-off.
First, the two markets and when a risk gets exported to surplus lines.
First, the two markets and when a risk gets exported to surplus lines.
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Admitted vs Non-Admitted Market
Two ways an insurer can do business in a state
🟢 Admitted (Authorized)
Licensed by the state insurance department
Files rates and forms with the regulator
Backed by the state guaranty fund if it becomes insolvent
🟠 Non-Admitted (Surplus Lines)
Not licensed in the state, but approved/eligible to write surplus lines
Flexible / manuscripted rates and forms — not filed the same way
NOT backed by the state guaranty fund
Clear up the confusionNon-admitted does NOT mean illegal or unregulated — a surplus lines insurer is eligible and approved to write hard-to-place risks; it just isn't licensed in that state and isn't covered by the guaranty fund. That guaranty-fund difference is the whole ballgame (cluster 4).
When Surplus Lines Is Appropriate
- Unavailable in the admitted market — no admitted carrier will write it
- Needs unusual or manuscripted policy language
- Has hazard characteristics outside standard underwriting guidelines (elevated risk, prior losses, unusual operations)
- Is large or complex enough to require multiple insurers (layered programs)
🎯 Common Surplus Lines Risks
Nuclear energy liability
Environmental / pollution (high-hazard sites)
Specialized aviation & maritime
High-value & trophy properties
Emerging risks: cyber, cannabis, P2P platforms
Professional liability for unusual professions
Construction in soft admitted markets
Placing a risk in the surplus lines market comes with three requirements: prove the admitted market was tried, hold the right license, and pay the tax.
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Diligent Search Requirement
The gatekeeper — try the admitted market first
- Contact a minimum number of admitted carriers (varies by state — often three)
- Document that they declined or quoted unacceptable terms
- Keep records of the search for regulatory examination
Exception: Export Lists
Some states keep export lists (or free-filing lists) of risk classes automatically deemed unavailable in the admitted market — those classes skip the diligent search.
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Surplus Lines License
A separate license, beyond the standard P&C license
The Licensee Is Responsible For
Verifying the diligent search was conducted · verifying the non-admitted carrier is an eligible surplus lines insurer in the state · reporting the placement to the state surplus lines office · collecting and remitting the surplus lines premium tax.
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Surplus Lines Premium Tax
Slightly higher than admitted — paid to the home state
Key Facts
A state premium tax, typically 2% to 6% of premium (slightly higher than the admitted-market rate), paid to the insured's home state under NRRA. In some placements the insured is technically the taxpayer, with the broker collecting and remitting on their behalf.
How they test thisDiligent search = prove the admitted market was tried (often 3 carriers, documented). The surplus lines license is SEPARATE from the P&C license. And the premium tax goes to the insured's HOME state — a direct tie-in to NRRA.
The Nonadmitted and Reinsurance Reform Act (NRRA) of 2010 standardized surplus lines regulation across states.
Before NRRA, a multi-state risk meant complying with several states' surplus lines rules at once. NRRA simplified it around one idea: the home state.
Before NRRA, a multi-state risk meant complying with several states' surplus lines rules at once. NRRA simplified it around one idea: the home state.
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Home State Only
Only the insured's home state has regulatory authority over a surplus lines transaction. For a business, the home state is typically the principal place of business.
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Single Premium Tax
Surplus lines premium taxes go only to the home state — no more splitting the tax among multiple states where the risk is located.
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Eligible Insurer List
Insurers on the NAIC's International Insurers Department (IID) list are deemed eligible in all states — simplifying multi-state eligibility verification.
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Exempt Commercial Purchasers
Large, sophisticated commercial buyers meeting specified criteria are exempt from the diligent search requirement.
The one idea to anchor NRRAHOME STATE. The home state alone regulates the transaction and collects the single premium tax. Add the IID eligible-insurer list and the exempt-commercial-purchaser carve-out, and you've got NRRA's four headline provisions.
The single most important — and most tested — idea in surplus lines: non-admitted policyholders are NOT protected by state guaranty funds.
🟢 Admitted Carrier
If it becomes insolvent, the state guaranty fund pays covered claims — the policyholder is protected.
🔴 Non-Admitted (Surplus Lines)
NO guaranty fund protection. If the carrier fails, the policyholder may not recover unpaid claims.
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Why — and What the Broker Must Do
The disclosure duty and the solvency check
- Guaranty funds exist to pay covered claims when admitted insurers fail
- Non-admitted carriers aren't under the same regulatory oversight, so guaranty funds don't extend to surplus lines policies
- If the surplus lines insurer is insolvent, the policyholder may not recover unpaid claims
- The producing broker has a duty to disclose this lack of guaranty fund protection to the insured
- Carrier financial strength is critical — verify the A.M. Best rating before placing
The single most tested pointMemorize it cold: admitted = guaranty fund protection; non-admitted (surplus lines) = NO guaranty fund protection. The broker's disclosure of that trade-off is among the most important producer duties in any surplus lines deal — and since there's no safety net, the carrier's solvency (A.M. Best rating) matters enormously.
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Top Exam Tips — Surplus Lines
1. The #1 tested fact: admitted = guaranty fund protection; non-admitted (surplus lines) = NO guaranty fund protection.
2. Surplus lines is for hard-to-place risks the admitted market can't or won't write — nuclear, pollution, trophy properties, cyber, cannabis, unusual professions.
3. Diligent search first: contact a minimum number of admitted carriers (often 3), document declines, keep records. Export-list classes skip it.
4. A separate surplus lines license is required (beyond the P&C license) to place non-admitted business.
5. Premium tax is typically 2–6% of premium, slightly higher than admitted, paid to the insured's home state.
6. NRRA (2010): home state only regulates and taxes; IID list = eligible everywhere; exempt commercial purchasers skip the diligent search.
7. Broker's duty: disclose the lack of guaranty fund protection and verify the carrier's financial strength (A.M. Best).
2. Surplus lines is for hard-to-place risks the admitted market can't or won't write — nuclear, pollution, trophy properties, cyber, cannabis, unusual professions.
3. Diligent search first: contact a minimum number of admitted carriers (often 3), document declines, keep records. Export-list classes skip it.
4. A separate surplus lines license is required (beyond the P&C license) to place non-admitted business.
5. Premium tax is typically 2–6% of premium, slightly higher than admitted, paid to the insured's home state.
6. NRRA (2010): home state only regulates and taxes; IID list = eligible everywhere; exempt commercial purchasers skip the diligent search.
7. Broker's duty: disclose the lack of guaranty fund protection and verify the carrier's financial strength (A.M. Best).
Exam vocabulary
Key Terms to Know
Surplus Lines
The specialty market that writes risks the admitted market can't or won't take — placed with non-admitted carriers.
Admitted Carrier
An insurer licensed/authorized in the state, with filed rates and forms and backing from the state guaranty fund.
Non-Admitted Carrier
An insurer not licensed in the state but eligible to write surplus lines. More flexible forms — and no guaranty fund backing.
Diligent Search
The required effort to place a risk in the admitted market first — contacting carriers (often 3), documenting declines, keeping records.
Export List
A state list of risk classes deemed automatically unavailable in the admitted market — those classes skip the diligent search.
Surplus Lines License
A license required in addition to the P&C license to place non-admitted business and handle eligibility, reporting, and tax duties.
Surplus Lines Premium Tax
A state tax of roughly 2–6% of premium, slightly above the admitted rate, paid to the insured's home state.
NRRA (2010)
The Nonadmitted and Reinsurance Reform Act — standardized surplus lines regulation around the insured's home state.
Home State
Under NRRA, the only state that regulates and taxes a surplus lines transaction — for a business, usually its principal place of business.
IID List
The NAIC International Insurers Department list — insurers on it are deemed eligible surplus lines insurers in all states.
Exempt Commercial Purchaser
A large, sophisticated commercial buyer who, meeting set criteria, is exempt from the diligent search requirement.
Guaranty Fund
A state fund that pays covered claims when an ADMITTED insurer fails. It does NOT cover non-admitted (surplus lines) policies.
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