What is the primary reason for licensing surplus lines brokers in a state?

Licensing surplus lines brokers is primarily focused on their role in placing business with nonadmitted insurers. Surplus lines insurance refers to coverage that is not available from licensed carriers within the state due to unique or high-risk factors. Nonadmitted insurers do not have the same regulatory oversight as admitted carriers, meaning they can offer more specialized coverage options.

The need for surplus lines brokers arises when traditional insurance options are insufficient or not available for particular risks. Licensing these brokers ensures that they meet specific qualifications and regulatory standards necessary for operating in this specialized market. This regulation helps protect consumers and maintain market integrity by ensuring that surplus lines brokers have a firm grasp on the intricacies and responsibilities involved when placing business with nonadmitted insurers.