What is a ‘brokerage agreement’ in the context of surplus lines insurance?

A brokerage agreement in the context of surplus lines insurance is a document that outlines the terms for placing insurance coverage. This agreement serves as a formal arrangement between the broker and the surplus lines insurer, detailing the responsibilities, expectations, and terms under which the broker will operate. It typically includes information such as the types of coverage being sought, commission structures, and other conditions pertinent to the placement of the insured’s risk with a surplus lines insurer.

This is important because surplus lines insurance is used when coverage is not readily available through standard insurance markets; thus, the brokerage agreement helps ensure that both the broker and the insurer understand their obligations and can navigate the complexities of these unique policies effectively. Having a clear brokerage agreement is crucial for compliance with regulatory requirements in the surplus lines market and helps protect both parties involved in the transaction.