Phrases like “not licensed” and “financial solvency” on a commercial insurance D1 form can cause concern, especially for those unfamiliar with the surplus lines marketplace. Let’s take a closer look at what the required D1 disclosure is actually saying.
Breaking Down the D1 Disclosure Form
Section 1: Non-Admitted Insurance Companies
“The insurance policy that you are applying to purchase is being issued by an insurer that is not licensed by the State of California. These companies are called ‘non-admitted’ or ‘surplus line’ insurers.”
The terms “admitted” and “non-admitted” refer to insurance products and how the carriers selling them are regulated. The non-admitted market was created to provide coverage for risks that the admitted market does not cover.
Section 2: Financial Solvency Regulation
“The insurer is not subject to the financial solvency regulation and enforcement that apply to California-licensed insurers.”
Rather than being regulated by the state insurance commissioner, non-admitted insurers are overseen by the State Surplus Lines Office. This does not mean they are financially unstable—it simply means they follow different regulatory guidelines.
Section 3: No State Guarantee for Claims
“The insurer does not participate in any of the insurance guarantee funds created by California law. Therefore, these funds will not pay your claims or protect your assets if the insurer becomes insolvent and is unable to make payments as promised.”
Despite this, many non-admitted carriers maintain strong financial ratings from agencies such as A.M. Best, making them just as secure as admitted carriers.
Sections 4-7: Verifying Carrier Information
These sections explain where and how policyholders can look up non-admitted insurers to verify their financial strength and compliance with state requirements.
Section 8: Right to Cancel
If an insured does not receive the D1 disclosure form until after coverage takes effect, they have the right to cancel the policy within five days of receiving the form. In this case:
- The minimum earned premium will be waived and replaced with a prorated amount.
- Any broker fees charged for the policy will be refunded.
Final Thoughts
Signing a D1 disclosure form is not a cause for alarm as long as the policy has been underwritten correctly, the carrier has a strong financial rating, and it is capable of meeting policy obligations.
For further questions on this or any other risk management topic, feel free to contact us. We look forward to assisting you!
