What is a ‘Domestic Surplus Line Insurer?’
A Domestic Surplus Line Insurer is an insurer that is specially licensed under the Domestic Surplus Line Insurer Law (Section 445a) of the Illinois Insurance Code. It is domiciled in Illinois but, unlike all other Illinois-domiciled insurers, can write surplus line policies in Illinois.
U.S. based insurers are always licensed by their state of domicile. Prior to the inception of this law, a U.S. based surplus line insurer had to operate on a licensed, admitted basis in its state of domicile. Therefore, if an insurer wanted to write surplus line contracts in all fifty states, two companies had to be created and capitalized. For example, a primary insurance company would be domiciled in Illinois to write policies in 49 states (all states except Illinois), and a secondary insurance company had to be created and capitalized (domiciled in a different state) just to write surplus line policies in Illinois. This is a waste of capital and an inefficiency of the surplus line insurance system in the U.S. Illinois recognized this with the creation of the Domestic Surplus Line Insurer Law.
For a list of Frequently Asked Questions regarding Domestic Surplus Line Insurers, see Bulletin 16. For a list of insurers currently registered as Domestic Surplus Line Insurers, see Bulletin 16a.
There are now at least twenty-two states that allow for Domestic Surplus Line Insurer status.