What does "insolvency risk" mean in surplus lines insurance?

In surplus lines insurance, "insolvency risk" refers specifically to the chance that a non-admitted insurer will be unable to meet its financial obligations. Non-admitted insurers are those that do not have a license to operate in a particular state; they often provide coverage for risks that admitted insurers are unwilling or unable to insure. This lack of regulation can sometimes lead to financial instability, which makes insolvency risk a significant concern for policyholders and brokers. If a non-admitted insurer becomes insolvent, policyholders might find themselves without coverage at the time they need it most, intensifying the risk involved in using such insurers. Understanding insolvency risk is crucial for making informed decisions about insurance coverage and recognizing the potential implications of selecting a non-admitted insurer for certain types of risks.