In a surplus lines transaction, who needs to approve the sale?

In a surplus lines transaction, the requirement for approval by three authorized users is rooted in the need for additional oversight and risk management inherent to such transactions. Surplus lines insurance generally involves coverage that is not available from standard insurers, often due to unique or higher-risk situations. Because of the elevated risk and the complexity involved in these transactions, a higher level of scrutiny is mandated.

The inclusion of three authorized users ensures that multiple perspectives and reviews are considered before proceeding with the sale, which helps mitigate the potential for adverse outcomes. This dynamic aligns with regulatory guidelines designed to ensure consumer protection and prudent underwriting practices in the surplus lines sector.

Having fewer than three authorized users may not provide sufficient oversight to address the intricacies and potential risks associated with surplus lines, thereby jeopardizing the integrity of the transaction. Thus, the requirement for three approvals serves to create a safeguard, ensuring that all aspects of the transaction are adequately vetted before proceeding.