Casualty Actuarial Society (CAS) Practice Exam

Which type of customer is typically addressed by surplus lines brokers?

1. Customers with standard insurance requirements

2. Customers who require high limits of insurance and specialized coverage

3. Customers seeking the lowest premium possible

4. Customers with no prior claims history

The correct answer is: Customers who require high limits of insurance and specialized coverage

Surplus lines brokers cater to customers who have unique or complex insurance needs that cannot be met by standard insurance carriers. This usually includes those requiring high limits of insurance and specialized coverage that falls outside the typical offerings of conventional insurers. For instance, businesses in niche industries, those involved in high-risk activities, or entities needing coverage for unusual risks would seek the expertise of surplus lines brokers. These brokers operate within a less regulated market, allowing them to access and negotiate with non-admitted carriers that can provide these specialized coverages. Customers with standard insurance requirements often find suitable coverage through traditional insurers, hence do not need the services of surplus lines brokers. Seeking the lowest premium possible usually aligns with standard offerings, where competitive pricing can be derived from a wide market of conventional insurance products. Additionally, having no prior claims history is generally favorable when seeking standard coverage, further illustrating that these customers are not the typical clientele for surplus lines brokers, who deal with more complex situations.