Texas Property & Casualty: Advanced Insurance Terms

Correct

The answer is D: Make a diligent effort to obtain it from admitted insurers

Insurance Code §981.004 allows surplus lines placement only when the full amount of required insurance cannot be obtained from authorized insurers after a diligent effort. The statute sets no number of declinations. Exceptions include exempt commercial purchasers and industrial insureds who ask in writing after a disclosure, and certain commercial lines, such as pollution and cyber liability, that have been exempt since 2021 (§981.004(g)). Surplus lines insurance is regulated by the Texas Department of Insurance, not by the courts or federal entities. Only a licensed surplus lines agent can place this coverage.

Source: Insurance Code §981.004 · Insurance Code §981.004(g)

Correct

The answer is A: Pooling arrangement

A pooling arrangement (also called a risk pool or intergovernmental risk pool) is a formal agreement among similar entities — often public entities like school districts, cities, or counties — to combine their resources and share risk. Members contribute premiums to a common fund used to pay losses. Pooling arrangements provide coverage that may be difficult or expensive to obtain in the commercial market and often include loss control services.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is B: 4.85%

Texas imposes a 4.85% premium tax on surplus lines insurance (Insurance Code §225.004). The surplus lines agent collects the tax from the insured and remits it to the Texas Comptroller of Public Accounts. By comparison, admitted insurers pay a 1.6% premium tax (§221.002). Surplus lines insurers do not participate in the Texas guaranty fund system.

Source: Insurance Code §225.004 · Insurance Code §221.002

Correct

The answer is A: Managing general agent (MGA)

Texas licenses this role as a managing general agent (MGA): a firm that supervises an insurer's local agency and field operations, or accepts or processes on the insurer's behalf policies that other agents produce (Insurance Code §4053.001). An MGA may handle the adjustment of losses and appoint or direct property and casualty agents (§4053.101), under a written contract that can cover underwriting, claims settlement and agent appointments (§4053.102). A TPA administers claims but does not underwrite or bind coverage, and an independent adjuster only handles claims.

Source: Insurance Code §4053.001 · Insurance Code §4053.101 · Insurance Code §4053.102

Correct

The answer is D: Fraternal benefit society

A fraternal benefit society is a nonprofit organization that provides insurance benefits (primarily life insurance and annuities) to members who share a common bond, such as religious, ethnic, social, or occupational ties. Under Texas Insurance Code §885.051, it has a lodge system and a representative form of government, operates solely for the benefit of its members and their beneficiaries and not for profit, and has no capital stock. Fraternal benefit societies enjoy certain regulatory and tax exemptions not available to commercial insurers.

Source: Insurance Code §885.051