What aspect of surplus lines insurance increases the risk for policyholders?

The correct answer is linked to the nature of surplus lines insurance, where claims are not covered by state guarantee funds. This is a significant aspect because most standard insurance policies are backed by state guarantee funds, which provide a safety net for policyholders in the event the insurer becomes insolvent.

In the context of surplus lines insurance, these policies are typically issued by non-admitted insurers. Because these insurers do not participate in state guarantee funds, policyholders are at a heightened risk if the insurer fails or is unable to pay claims. Without this backing, policyholders may find themselves unprotected, facing potential financial loss without the means to recover through state programs.

Other factors, such as lack of coverage options, high premiums, or limited communication from brokers, can certainly contribute to the overall risk and experience of the client, but the unique position of surplus lines, where state protections do not apply, fundamentally elevates the risk profile for policyholders in this insurance category.