Your business insurance might be “non-admitted.” What that means and what to check

By Daniel Masarsky, CA Lic. 0D87510

Updated October 9, 2026. Look at the front page of your business policy. If you see a boxed notice in large bold type that says the insurer is “not licensed by the State of California,” your policy is non-admitted, also called surplus lines or E&S (excess and surplus). That’s more common than many owners realize. Insurance Journal, citing AM Best, reported that surplus lines carriers wrote 27.5% of the U.S. commercial insurance market in 2025, up from 25.7% in 2024.

A non-admitted policy isn’t necessarily a bad policy. For many Bay Area restaurants, contractors, older buildings and hard-to-place risks, it’s the only option or the best one. But it works differently from an admitted policy, and you should know how before your next renewal.

Admitted vs. non-admitted: the basic difference

An admitted insurer is licensed by the California Department of Insurance (CDI) to do business in the state. A non-admitted (surplus lines) insurer isn’t licensed here. Instead, it’s licensed in another U.S. state or another country and placed through a licensed California surplus line broker. California law requires every non-admitted policy to carry a standard notice that spells out what that means. Under Insurance Code section 1764.1, the notice says:

• The insurer is not licensed by the State of California.
• The insurer isn’t subject to the financial solvency regulation and enforcement that apply to California-licensed insurers.
• The insurer doesn’t 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.”
• California maintains a List of Approved Surplus Line Insurers (LASLI), and you can ask whether your insurer is on it.

Why the guarantee fund matters

The California Insurance Guarantee Association (CIGA) pays certain claims when an insurer goes insolvent and is ordered into liquidation. CIGA says it becomes responsible when a member insurer admitted to transact business in California is found insolvent and ordered into liquidation. CIGA’s caps for most claims, including commercial liability, are $500,000 or the policy limit, whichever is less. Because surplus lines insurers aren’t CIGA members, that safety net doesn’t apply to a non-admitted policy. That makes the insurer’s financial strength more important, so it’s worth asking about.

The rules your broker has to follow

The diligent search. Under Insurance Code section 1763, a surplus line broker may place your coverage with a non-admitted insurer only if it can’t be obtained from admitted insurers that actually write that type of insurance in California. The broker must make a “diligent search” of those admitted insurers first. According to the Surplus Line Association of California (SLA), it’s prima facie evidence of a diligent search if three admitted insurers that write that coverage declined the risk, or if fewer than three admitted insurers write it. The SLA lists two exceptions: coverage on the state’s Export List, and insureds that qualify as “exempt commercial insureds” under section 1760.1.

The SL-2 form. The broker records the search on the Diligent Search Report (SL-2) and files it with the SLA, which acts as the Insurance Commissioner’s designee. The SL-2 lists each admitted insurer that declined, by name and NAIC number, and must be signed by the California property and casualty licensee who did or supervised the search. The SLA says the search must happen before the policy’s effective date.

No shopping for a cheaper rate. Section 1763 also says business can’t be placed with a non-admitted insurer just to get a rate lower than the lowest rate an admitted insurer would accept.

Your signed disclosure. Separate from the SL-2, section 1764.1 requires the broker to get your signature on the notice above, in boldface 16-point type on a stand-alone page, when you apply for a new non-admitted policy. The broker must keep it for at least five years. If coverage had to be bound immediately and you got the disclosure afterward, you can cancel within five days of receiving it, with a pro-rata premium refund and a refund of the broker fee. Larger “industrial insureds” (generally at least 25 employees and at least $25,000 in non-workers’ comp premium) get the notice on the policy instead of signing it.

What to check at your next renewal

1. Find out which kind of policy you have. Look for the bold notice on the front page or ask your broker.
2. Ask whether an admitted carrier will quote now. Your business, your claims history or the market may have changed since you were placed. AM Best expects some business to stay in surplus lines even as rates soften, but it’s still worth asking each year.
3. Ask about the insurer. Is it on CDI’s LASLI list? What is its financial strength rating?
4. Compare the forms, not just the price. Surplus lines policies can use their own wording. Check exclusions (for example, assault and battery, habitational, or classification limits), sublimits, minimum earned premiums and how defense costs are handled.
5. Ask about taxes and fees. Ask for any taxes and broker fees on the quote to be listed separately so you can compare quotes fairly.
6. Keep your paperwork: the signed disclosure, the binder and the policy.

Related reading: our guides to the business owners policy in California, general liability for California small businesses, and commercial property insurance.

FAQ: non-admitted business insurance

Is a non-admitted insurance policy legal in California?

Yes, when it’s placed through a licensed surplus line broker after the required diligent search, or under one of the exceptions, and the required disclosures are given.

Will CIGA pay my claim if a surplus lines insurer fails?

No. The required notice states that non-admitted insurers don’t participate in California’s guarantee funds, and CIGA covers insolvent member insurers admitted in California.

What is the SL-2 form?

It’s the Diligent Search Report the surplus line broker files with the Surplus Line Association of California. It shows which admitted insurers declined your risk, or explains why fewer than three admitted insurers write it.

Can I move back to an admitted policy?

Often you can, if an admitted carrier will write your class of business on acceptable terms. Ask your broker to check at each renewal.

Get a second look at your business coverage

ESI Insurance Brokers (Express Service Insurance Agency, Inc.) at 2085 Van Ness Avenue in San Francisco compares admitted and surplus lines options for Bay Area small businesses, and we’ll explain the difference in plain language.

Request a business insurance quote →

Or call (415) 440-5136 · CA LIC# 0G83954

Sources

• Insurance Journal: “Surplus Lines Leaders Remain Bullish on Outlook in a Shifting Market” (Oct. 5, 2026), citing AM Best
• California Insurance Code section 1764.1 (required surplus lines disclosure)
• California Insurance Code section 1763 (diligent search)
• Surplus Line Association of California: “Diligent Search Report (SL-2 Form) Deconstructed” (rev. 1/1/24)
• California Department of Insurance: List of Approved Surplus Line Insurers (LASLI)
• California Department of Insurance: notice to producers on the non-admitted market and diligent search (PDF)
• California Insurance Guarantee Association: FAQs
• California Insurance Guarantee Association: Liability, auto and property claims

This article is general information, not legal advice or a coverage determination. Your coverage depends on the actual policy terms. Ask your broker how these rules apply to your business.