Must an agent notify the customer that insurance is being placed with an unlicensed insurer prior to placing insurance on the risk?

In Michigan, it is mandated that agents notify customers when insurance coverage is being placed with an unlicensed insurer. This requirement exists to ensure that the customer is fully aware of the nature of the insurance product they are purchasing. Unlicensed insurers are not authorized to conduct business in the state, which may involve certain risks for the policyholder, such as less regulatory oversight and consumer protections.

By informing the customer beforehand, the agent allows them to make an informed decision regarding their coverage options. This transparency fosters trust in the agent-client relationship and ensures compliance with state regulations regarding surplus lines insurance, which is often used to cover risks that standard insurers are unwilling to underwrite.

Notifying the customer protects both the client and the agent, as it ensures that customers understand the implications of choosing coverage from an unlicensed insurer and can weigh their options appropriately. This practice not only adheres to regulatory requirements but also upholds ethical standards within the insurance industry.