Understanding the Surplus Lines Broker’s Role: Key Responsibilities and Regulatory Insights

Episode: Understanding the Surplus Lines Broker’s Role: Key Responsibilities and Regulatory Insights
Hosts: John Emmanuel and Zachary Lerner
Aired: December 2, 2025

Zachary Lerner (00:17):
Hi John, welcome back to the next edition of our surplus line series. Today we’re going to talk about the surplus lines brokers role in the surplus lines transaction. So John, why don’t you enlighten us a bit on kind of the differences between the admitted market and the surplus lines market when it comes to the role of the brokers?

John Emmanuel (00:35):
Certainly. One of the differences between the admitted market and the surplus lines market is that unlike the admitted market, all sales must be done through a licensed surplus lines broker. They are the regulated entity in a surplus lines placement, and there are certain areas that they have to comply with. For example, a diligence search requirement. In most states, they have to do three declinations. In other words, three admitted companies must deny placing that risk before it can be placed in the non-admitted market. Tax requirements: The broker is also responsible for paying the premium tax, unlike an admitted market, which is the admitted insurer who pays the tax. And certain disclosure requirements. For example, the placement, the policy is not covered by the state’s guarantee fund and is not otherwise regulated by the state as well.

Zachary Lerner (01:20):
Yeah, and look, the surplus lines broker has responsibilities that go beyond simply checking the boxes, right? There’s many instances where that surplus lines broker may rely on a retail broker to perform some of these duties, such as the diligence search of the diligent effort requirements. But a number of states, in fact, I’d say the majority ultimately hold that surplus lines broker responsible. So it is important for our clients in the marketplace to be careful about what roles they delegate to retail brokers or other third-parties in a surplus lines transaction because that surplus lines broker is really the sole licensee on that surplus lines transaction. If something goes wrong, it is now the unauthorized transaction of insurance, which accordingly could end up with fines and penalties against the surplus lines insurer, the surplus lines broker, and even the retail agent as well, with the surplus lines broker usually being in the center of any enforcement action.

John Emmanuel (02:15):
And not only that support member that these are brokers, not agents, a surplus lines insurer cannot appoint an agent. However, they are allowed to give binding authority to that broker, which leads to additional regulatory requirements such as in New York, where you have to file that binding authority with ELANY, the Excess Lines Association [of New York], for approval. So they can have some aspects of agent capacity, but they’re not agents, they are brokers.

Zachary Lerner (02:39):
And it’s a really great point because when you’re negotiating a program administrator or similar agreement, these types of considerations must be taken into account when defining the roles of the parties and what activities can be conducted. In fact, in California there’s been multimillion dollar fines for surplus lines brokers acting as agents in the state or otherwise exercising managerial capacity for that surplus lines carrier. So some states take this really seriously, and so you may not act as a quote unquote, MGA/MGU or similar term for a surplus lines carrier.

John Emmanuel (02:39):
So while the surplus lines insurer has to be eligible in the state, it’s actually the surplus lines broker who’s licensed and the regulated entity.

Zachary Lerner (03:20):
Thanks John. Thank you very much for joining us today. We look forward to talking with you in our next iteration of our series where we’re going to discuss satisfaction of financial responsibility requirements to the surplus lines market in particular, personal and commercial motor vehicle coverage.

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