Demystifying Surplus Lines Group Insurance

Episode: Demystifying Surplus Lines Group Insurance
Hosts: John Emmanuel and Zachary Lerner
Aired: December 16, 2025

John Emmanuel (00:18):
Hello. Welcome back, and today we’ll be talking about surplus lines group issues.

Zachary Lerner (00:22):
Thanks, John. So surplus lines group insurance, probably one of the hottest topics we see in the surplus lines regulatory world, and we probably get a question on this at least once a week from clients with carriers and brokers alike. This is an area where you see, especially out of the international markets, a way to help constrain total underwriting risk for a carrier to group lots of insurance together on a common master policy. Unfortunately, it comes with some hair. As an initial matter under the Nonadmitted and Reinsurance Reform Act or the NRRA, when you discuss what is the home state of the insured, there is a separate definition for affiliated groups, and they are, for all intents and purposes, you look to the largest group member on a group insurance policy, and that’s their home state. But the NRRA does not define unaffiliated groups. So what do you do? Some states think they know the answer, and they’ll pass laws and regulations that say for non-affiliated groups, you have to look to the home state of each member of that group policy if that member is paying premium from its own funds. Now, we have seen some interpretations where, “What if I pay the premium to the master policy holder, who then pays it over to the state?” Well, in our experience, states don’t really like that as a workaround. They say if you’re responsible for your own premium, every member of a group is a separate and distinct home state insured, and there’s many implications there. Do you have to do the due diligence search for every member of the group? Do you have to remit taxes to every state for members of that group? Do you have to comply with the group laws as to every member of that group? So some states, like Illinois, for example, have really great expansive surplus lines group laws, and essentially allow you to do surplus lines group insurance. Other states, like New York, are very restrictive and prohibit most forms of group surplus lines property and casualty insurance.

John Emmanuel (02:24):
One area of importance in the group context for unaffiliated groups is where to pay the taxes, because it’s undefined in NRRA. So, people take the position that they have to file it or should file it just in the home state of the master policy holder, but that’s not always correct. States take different views on where that tax should be paid, and most of them take the position that it should be paid where the home state of the insured is located, not necessarily the master policy holder, which could leave some difficulties, which we’ve encompassed in the past.

Zachary Lerner (02:53):
Yeah, and I will finally add on this topic that many of our clients love to utilize risk purchasing groups as a way to issue group insurance to the surplus lines market, and we love it too, but it doesn’t solve all issues. As an initial matter, risk purchasing groups can only provide commercial liability insurance. Any other type of insurance will not enjoy federal preemption over state group laws. Second, while a risk purchasing group, if permissibly utilized, will allow you to do group P&C surplus lines insurance in all states, including New York as to commercial liability insurance, it doesn’t solve the surplus lines issues necessarily. In fact, you are more on a department’s radar because the purchasing group is registered with the state. So these issues regarding the diligence search, unless there is an exemption or leniency under that state’s law, and that tax application issue still come into play with risk purchasing groups as well.

John Emmanuel (03:46):
Thanks, Zach.

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