Non-admitted carriers frequently require the full annual premium to be paid at or before binding. There are no carrier installment plans, no billing schedules, no partial payments. The client either pays in full or the coverage does not bind. For a business facing a $120,000 E&S premium, that is a significant cash flow event — and it is one that most brokers have no immediate solution for.
Premium financing is that solution. This guide covers exactly how to set it up on a non-admitted placement, what to watch for, and the specific questions to ask your PFC before presenting a quote.
Why non-admitted carriers require full payment
Non-admitted carriers operate outside the regulatory framework that governs admitted companies in each state. They are not subject to state rate and form filing requirements, and they do not have the same financial oversight mechanisms. In exchange for the flexibility to write non-standard risks, they typically require full premium upfront — it reduces their credit exposure on accounts that are, by definition, risks the admitted market declined.
This is not negotiable with most E&S carriers. It is a structural feature of the non-admitted market, not a pricing or service issue. Premium financing converts that full-payment requirement into a monthly payment structure by having the PFC advance the full amount directly to the carrier.
How the mechanics work on a non-admitted placement
The process follows the same general structure as financing an admitted policy, with a few operational differences:
- Step 1 — Quote the coverage: Your wholesale broker or MGA provides a premium indication from the non-admitted carrier. This quote includes the base premium and any carrier fees, plus the applicable surplus lines tax.
- Step 2 — Determine the financed amount: Confirm with your PFC which components of the total cost can be included in the financing. Most PFCs will finance the base premium and carrier fees. Surplus lines tax treatment varies — some PFCs include it; others require it to be paid separately at binding.
- Step 3 — Present the financing quote to the client: The client sees the down payment, the monthly payment amount, and the total finance charge. This should be presented alongside the total cost of the policy so the comparison is transparent.
- Step 4 — Client signs the finance agreement: The client executes the premium finance agreement, which includes the power of attorney authorizing the PFC to cancel the policy in the event of default.
- Step 5 — PFC funds the premium: The PFC advances the full amount to the surplus lines broker, who remits payment to the non-admitted carrier. Coverage binds.
- Step 6 — Client repays monthly: The client makes fixed monthly installments to the PFC for the remainder of the loan term, typically 9–10 months.
The surplus lines tax question
Surplus lines taxes are assessed by the state where the policy is placed and must be remitted by the surplus lines broker. The tax rate varies by state — typically 2–5% of the premium. This creates a specific question for premium financing: does the PFC finance the tax, or does the client pay it separately at binding?
The answer matters for two reasons. First, it affects the total amount due at binding. If the tax is not financed, the client pays it upfront in addition to the down payment. On a $100,000 premium with a 4% surplus lines tax, that is an additional $4,000 due at signing. Second, it affects how the financing is structured — if the tax is financed, the loan amount is higher and the monthly payment reflects the full cost.
Before presenting a quote to the client, confirm the tax treatment with your PFC. Build that into the numbers you show the client so there are no surprises at binding.
Short-rate cancellation: the key risk to disclose
Most admitted carriers cancel on a pro-rata basis when a policy is terminated mid-term. The unearned premium is calculated proportionally based on how much of the policy period remains.
Many non-admitted carriers cancel on a short-rate basis. Short-rate cancellation applies a penalty to the return premium, meaning the carrier retains more of the premium than the pro-rata calculation would suggest. For clients with financed E&S policies, this creates a risk: if the policy is cancelled — either by the insured or by the PFC in a default scenario — the return premium from the carrier may not fully cover the outstanding loan balance.
This should be disclosed to the client before they sign the finance agreement. The conversation is straightforward:
One thing to be aware of: if for any reason this policy needs to be cancelled before the end of the term, the carrier applies a short-rate calculation to the return premium. That means the return is slightly less than a straight pro-rata refund. As long as you make all your payments and keep the policy in force, this does not affect you at all. But it is worth knowing upfront.
Cancellation notice requirements for E&S policies
State law determines the notice period the PFC must provide before cancelling a financed policy. For surplus lines placements, these requirements may differ from the rules that apply to admitted policies in the same state.
In Patch's licensed states, the cancellation notice period for E&S policies is generally the same as for admitted policies — at least 10 days of written notice before the effective cancellation date. However, the notice goes to the surplus lines broker (not directly to the carrier), who is then responsible for notifying the non-admitted carrier and processing the cancellation. This adds one step to the process, which is worth confirming with your wholesale broker when the placement is set up.
Practical checklist for financing a non-admitted placement
- Confirm the carrier accepts PFC payment. Most do, but verify with your wholesale broker before quoting financing to the client.
- Clarify surplus lines tax treatment. Does the PFC finance it or does the client pay it at binding?
- Confirm the cancellation notice path. Who receives the notice — the surplus lines broker, the insured, or both?
- Review short-rate provisions in the policy form. Disclose the short-rate risk to the client before signing.
- Confirm your licensed state. Patch operates in TX, FL, IL, CA, NC, and SC. Placements in other states require a different PFC.
Frequently asked questions
Does financing a non-admitted policy require any different disclosures than an admitted policy?
The core disclosures in the premium finance agreement are the same. You should additionally disclose the short-rate cancellation risk and the surplus lines tax treatment (including whether it is financed or paid separately). Some states may require specific disclosure language for non-admitted placements — confirm with your wholesale broker or a licensed attorney if you are unsure.
Can I earn an arranger fee on a non-admitted placement?
Yes, in states that permit arranger fees. The fee structure and disclosure requirements are the same as for admitted policies. The financed premium amount — which forms the basis for the arranger fee calculation — is typically the base premium plus any financed fees, not including separately-paid surplus lines taxes.
What if the non-admitted carrier refuses to accept payment from a PFC?
This is uncommon but does occasionally happen, particularly with certain Lloyd's syndicates or specialty program managers. If a carrier requires direct payment from the insured only, premium financing is not available for that placement. In this scenario, you may be able to help the client explore a business line of credit or other cash flow solution.
How does the PFC send payment on a non-admitted placement?
The PFC wires the full financed amount to the surplus lines broker, who then remits payment to the non-admitted carrier. The broker should confirm the correct wire instructions with the PFC before binding to ensure the process runs smoothly and coverage is not delayed.
If a financed E&S policy lapses, can it be reinstated?
Reinstatement on non-admitted policies is entirely at the carrier's discretion and is less common than with admitted carriers. Many E&S carriers will not reinstate a lapsed policy — particularly if any claims occurred during the gap period or if the client's risk profile has changed. Prevention is the right strategy: monitor payment status closely and respond to any default notices immediately.
