Texas General Lines — Life, Accident, Health and HMOTexas Statutes and Rules Common to Life, Accident, Health and HMOMedium
A Texas-licensed agent is found to have placed insurance coverage with an insurer that does not hold a Certificate of Authority in Texas. This action is considered a violation of the Texas Insurance Code. Which of the following best describes the status of such an insurer?
- AA domestic insurer
- BAn admitted insurer
- CA surplus lines insurer
- DAn unauthorized insurer
Show answer & explanationAnswer & explanation
Correct answer: D. An unauthorized insurer
Placing coverage with an insurer that lacks a Certificate of Authority from the Texas Department of Insurance (TDI) means the insurer is not authorized to transact business in Texas. This is a serious violation as it bypasses regulatory oversight designed to protect policyholders.
Why the other options are wrong
- A. A domestic insurer is a company that is incorporated and domiciled in Texas.
- B. An admitted insurer is one that is authorized to transact insurance business in Texas.
- C. A surplus lines insurer is a type of unauthorized insurer that is permitted to write certain types of coverage through licensed surplus lines agents when admitted insurers cannot provide the coverage, but they still operate under specific regulations.
Unauthorized Insurer
An insurer that has not been granted a Certificate of Authority by the Texas Department of Insurance to conduct insurance business in the state.
- Cannot legally transact insurance business in TX without specific exemptions (e.g., surplus lines).
- Placing business with them is a violation for agents.
- Policyholders may have less protection from guaranty associations.
Memory trick: Authorization is key; without the 'A', it's a 'No-Go' for business.