Which statement about surplus lines coverage is correct?

Surplus lines coverage is designed to provide insurance solutions for unique or unusual risks that cannot be adequately covered by standard insurance policies. This type of coverage is essential for individuals or businesses that face specialized risks that are either excluded from traditional insurance products or are difficult to place due to their nature. Consequently, surplus lines insurers can offer policies tailored to these unique situations, making them a vital aspect of the insurance market.

The other statements do not accurately reflect the characteristics of surplus lines coverage. It is not guaranteed to be cheaper than standard coverage; in many cases, it may even be more expensive because of the increased risk involved. Moreover, surplus lines coverage is not restricted to long-term policies; it can cover a wide range of policy durations based on the needs of the insured. Additionally, while surplus lines must be placed with licensed surplus lines brokers, they do not always require prior approval from regulators in the same way that standard policies do. This is because surplus lines legislation allows for flexibility in offering coverage for risks that do not readily fit within the standard insurance market.