1.3 Types of Insurers: Admitted, Surplus Lines, Reciprocals and Residual Markets

Quick Answer: An admitted or authorized insurer holds a certificate of authority from the Florida Office of Insurance Regulation, files rates and forms for approval, and its policyholders are backed by FIGA if it fails. An eligible surplus lines insurer is an unauthorized carrier that Florida allows to write risks the admitted market will not take; it files no rates or forms with OIR and carries no FIGA protection. Coverage may be exported only after a diligent effort — rejection by at least three authorized insurers, or one when the residential structure has a dwelling replacement cost of $700,000 or more — and the insured pays a 4.94% surplus lines premium tax.

An all-lines adjuster in Florida works files for many different kinds of carrier. Which kind matters, because it determines whose forms you are reading, who regulates the settlement, and what happens to your claimant if the carrier fails.

---

Admitted (Authorized) Insurers

An admitted insurer — the Insurance Code calls it an authorized insurer — has been issued a certificate of authority by the Office of Insurance Regulation to transact specified kinds of insurance in Florida.

• Rates and forms are regulated. Policy forms and rating plans must be filed with, and are subject to disapproval by, the OIR. That is why two admitted homeowners carriers issue recognizably similar HO-3 forms.
• Financial regulation. The insurer must meet Florida's capital, surplus, reserve and investment standards, file annual statements, and submit to market conduct and financial examinations.
• Guaranty fund protection. Admitted property and casualty carriers are member insurers of the Florida Insurance Guaranty Association. If one is placed in liquidation with a finding of insolvency, FIGA pays covered claims within the statutory limits.
• Appointment of adjusters. Only an authorized insurer or a licensed adjusting firm can supply the primary appointment that activates an adjuster license.

Domestic, Foreign and Alien

The certificate of authority is separate from where the company was formed:

All three can be admitted in Florida; all three can also be unauthorized here. "Foreign" is about state of domicile, not about authorization — a classic exam distractor.

---

Unauthorized Insurers and the Surplus Lines Market

An unauthorized insurer has no Florida certificate of authority. Florida's Surplus Lines Law (F.S. §§ 626.913–626.937) creates a controlled channel through which specially licensed surplus lines agents may place business with eligible surplus lines insurers — unauthorized carriers the office has made eligible.

Why the Market Exists

Surplus lines exists to absorb risks the admitted market declines: high-value coastal dwellings, vacant buildings, amusement operations, professional liability for hard-to-place specialties, unusual marine and aviation exposures, and, in Florida, large swaths of residential property when the admitted market contracts.

The Diligent Effort Test (F.S. §§ 626.914(4) and 626.916)

Coverage may be exported only if the full amount required is not procurable from authorized insurers after a diligent effort:

• Diligent effort means seeking coverage from and being rejected by at least three authorized insurers currently writing that type of coverage, with the rejections documented.
• If the residential structure has a dwelling replacement cost of $700,000 or more, diligent effort means rejection by at least one authorized insurer, documented.
• Declinations must be documented risk by risk. The surplus lines agent must obtain a properly documented statement of diligent effort from the producing agent, and the agent's reliance on it must be reasonable.
• Only the excess over the amount procurable from authorized insurers may be exported, although if the required amount cannot be assembled by layering, the full amount may be exported.
• The exported rate may not be lower than the rate a majority of authorized insurers currently use for the same coverage on a similar risk, and the form may not be more favorable to the insured than similar admitted contracts.

What Surplus Lines Placement Means at the Claim

Exam Trap: No Guaranty Fund Behind Surplus Lines

The single most tested consequence of a surplus lines placement is that FIGA does not respond if the carrier fails. The insured who saved premium by going to the non-admitted market also gave up the state's insolvency backstop. Surplus lines insureds are, however, still subject to Citizens emergency assessments, which the surplus lines agent collects along with the surplus lines tax.

---

Other Organizational Forms an Adjuster Will Meet

• Stock insurer. A corporation owned by stockholders; earnings are distributed to shareholders as taxable dividends. Policyholders are customers, not owners.
• Mutual insurer. A corporation owned by its policyholders. Any distribution to policyholders is a policy dividend, treated as a return of premium rather than taxable income.
• Reciprocal insurance exchange. An unincorporated association in which subscribers insure one another, each assuming a proportionate share of the others' risk. The exchange is managed by an attorney-in-fact who accepts applications, issues policies, and handles claims on behalf of the subscribers. On a claim file this shows up as correspondence from a management company acting for the exchange; the coverage obligation still belongs to the subscriber pool.
• Lloyd's associations and syndicates. Groups of individual underwriters who each assume an agreed share of a risk. Liability is several, not joint — each underwriter is responsible only for its own participation.
• Fraternal benefit society. A nonprofit membership organization with a lodge system and a representative form of government, writing life and health benefits for members.
• Risk retention groups and purchasing groups. Federally authorized mechanisms under the Liability Risk Retention Act that let similar businesses band together for liability coverage; a risk retention group is chartered in one state and operates in others with limited host-state regulation.
• Self-insurers. Employers and public entities that retain their own loss exposure, often with excess insurance above a large retention and a third-party administrator handling claims. Florida self-insurers for workers' compensation must qualify under Chapter 440, and a self-insured employer's adjuster still must be licensed.

---

Residual Markets: Coverage of Last Resort

When neither the admitted nor the surplus lines market will write a mandatory or essential coverage, Florida supplies a statutory mechanism. Each is examined in detail elsewhere in this guide; know the map:

The Cat Fund belongs on this list only as a contrast. It never issues a policy to a consumer and never pays a policyholder; it reimburses an insurer above that insurer's retention.