What is the purpose of the Surplus Lines Guaranty Fund Law?

The Surplus Lines Guaranty Fund Law serves several functions within the insurance market, primarily aiming to protect policyholders. The correct choice highlights the importance of ensuring all carriers contribute to the fund for business operations.

This law is established to provide a safety net for consumers in the surplus lines market. By requiring that surplus lines insurers contribute to the guaranty fund, it creates a pool of resources that can be used to pay claims in the event that a surplus lines insurer becomes insolvent. This contribution helps maintain the financial stability and reliability of the surplus lines market, ensuring that policyholders have recourse even if their insurer fails.

In contrast, protecting insurers from failure, providing financial guarantees for policyholders in default, and regulating premium rates across states do not capture the primary aim of this law. The focus is not directly on insurer protection or premium regulation but rather on maintaining a viable system where policyholders can feel secure in the coverage they purchase.