Alabama Surplus Line Broker Bond: A Comprehensive Guide

February 21, 2022

Alabama Surplus Line Broker Bond

This guide provides information for insurance agents to help their customers obtain an Alabama Surplus Line Broker Bond

At a Glance:

  • Average Cost: Between $375 to $3,500 per year based on the applicant’s credit
  • Bond Amount: $50,000
  • Who Needs it: All surplus line brokers operating in Alabama
  • Purpose: To ensure the public will receive compensation for any damages should the surplus line broker fail to comply with licensing law
  • Who Regulates Surplus Line Brokers in Alabama: The Alabama Department of Insurance

Background

Alabama statute 27-10-24 requires all surplus line brokers operating in the state to obtain a license with the Department of Insurance. The Alabama legislature enacted the licensing laws and regulations to ensure that surplus line brokers engage in ethical business practices. To provide financial security for the enforcement of the licensing law, resident surplus line brokers must purchase and maintain a $50,000 surety bond to be eligible for licensure.

What is the Purpose of the Alabama Surplus Line Broker Bond?

Alabama requires all resident surplus line brokers to purchase a surety bond as part of the application process to obtain a business license. Non-resident brokers are exempt from this requirement. The bond ensures that the public will receive compensation for financial harm if the broker fails to comply with the regulations set forth in Alabama statute 27-10-24. Specifically, the bond protects the public in the event the broker engages in any acts of fraud or fails to remit any taxes or fees. In short, the bond is a type of insurance that protects the public if the surplus line broker breaks licensing laws.

Alabama Surplus Line Broker Bond Form

Alabama Surplus Line Broker Bond Form

How Can an Insurance Agent Obtain an Alabama Surplus Line Broker Surety Bond?

BondExchange makes obtaining an Alabama Surplus Line Broker bond easy. Simply log in to your account and use our keyword search to find the “surplus” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

Is a Credit Check Required for the Alabama Surplus Line Broker Bond?

Surety companies will run a credit check on the surplus line broker to determine eligibility and pricing for the Alabama Surplus Line Broker bond. Brokers with excellent credit and work experience can expect to receive the best rates. Brokers with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the broker’s credit.

How Much Does the Alabama Surplus Line Broker Bond Cost?

The Alabama Surplus Line Broker bond can cost anywhere between $375 to $3,500 per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the bond cost on the $50,000 bond requirement.

$50,000 Surplus Line Broker Bond Cost

Credit Score Bond Cost (1 year)
720+ $375
625 – 719 $500
600 – 624 $1,250
575 – 599 $1,500
550 – 574 $2,500
500 – 549 $3,500

Who is Required to Purchase the Bond?

Alabama requires all resident surplus line brokers to purchase a $50,000 surety bond before obtaining a business license. To paraphrase Alabama statute 27-10-20, a surplus line broker is an individual or business entity that is authorized to obtain insurance coverages from insureds that are not licensed in the state of Alabama.

How do Surplus Line Brokers Apply for a License in Alabama?

Surplus line brokers in Alabama must navigate several steps to secure their licenses. Below are the general guidelines, but applicants should refer to the application instructions for details on the process.

License Period – All Alabama Surplus Line Broker Licenses expire on December 31 of each year and must be renewed before the expiration date

Step 1 – Meet the Prerequisites

License applicants must satisfy all of the following criteria before submitting their application:

    • Have a high school diploma or equivalent
    • Be a licensed resident producer for property and casualty lines
    • Have a minimum of three years of experience in the property and casualty fields

Step 2 – Purchase a Surety Bond

Resident surplus line brokers must purchase and maintain a $50,000 surety bond.

Step 3 – Submit Proof Of Citizenship

The Beason-Hammon Taxpayer and Citizen Protection Act requires Alabama to verify the citizenship of all applicants before issuing their licenses. Brokers can submit proof of citizenship here.

Step 4 – Complete the Application

All Alabama surplus line broker applications should be completed online here. Brokers must complete the application in its entirety, and pay a $230 fee.

The above steps outline the process for obtaining an individual license. Instructions on how to become licensed as a surplus line business entity can be found here. Businesses must employ at least one licensed surplus line broker, and appoint this person as their designated responsible individual. Brokers applying for licensure as a business entity must submit a $530 fee with their license application.

How Do Alabama Surplus Line Brokers Renew Their Licenses?

The Department of Insurance will send brokers a renewal notice on October 1 of each year. Brokers must return the completed notice, including a $200 fee ($500 for business), to the department. Brokers whose licenses expire must reapply here. All Alabama Surplus Line Broker Licenses expire on December 31 of each year and must be renewed before the expiration date.

What are the Insurance Requirements for Surplus Line Brokers in Alabama?

Alabama does not require surplus line brokers to obtain any form of liability insurance as a prerequisite to obtaining a business license. Resident surplus line brokers must purchase and maintain a $50,000 surety bond.

How Do Alabama Surplus Line Brokers File Their Bond?

Surplus line brokers should mail their completed bond form, including the power of attorney, to the following address.

Alabama Department of Insurance
P O Box 303351
Montgomery, AL 36130-3351

The bond requires signatures from both the surety company that issues the bond and from the surplus line broker. The surety company should include the following information on the bond form:

  • Legal name, city, and state of entity/individual(s) buying the bond
  • Surety company’s name
  • Date the bond is signed
  • Witness signatures for the broker and surety company

What Can Alabama’s Surplus Line Brokers Do to Avoid Claims Against Their Bonds?

To avoid claims on their bond, surplus line brokers in Alabama must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

  • Pay all required taxes and fees
  • Keep records of all transactions performed under the license

What Other Insurance Products Can Agents Offer Surplus Line Brokers in Alabama?

Alabama does not require surplus line brokers to purchase any form of liability insurance as a prerequisite to obtaining a business license. However, most reputable brokers will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Alabama Surplus Line Broker Customers?

Alabama conveniently provides a public database to search for active surplus line brokers in the state. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-08-23T10:55:58-04:00