Final answer:
A surplus lines insurer or non-admitted insurer can underwrite coverage that a state has barred for typical domestic insurers, often via a third-party broker. This type of insurer can provide insurance for higher-risk coverage that standard markets may not be willing to underwrite.
Step-by-step explanation:
When a state bars the sale of a particular coverage within its boundaries, typically, a domestic insurer cannot provide that coverage. However, in such circumstances, an insurer not licensed in the state, often referred to as a surplus lines insurer or a non-admitted insurer, can underwrite the coverage. This is usually done through a third-party broker who specializes in the surplus lines market. These surplus lines insurers are essential because they can provide coverage for risks that the standard market won't insure, often due to the nature of the risk being perceived as too high or outside of the standard underwriting criteria.
Governments often intervene in insurance markets, sometimes requiring everyone to buy certain kinds of insurance, like auto or homeowner's insurance. This leads to a scenario where there is no need for insurance companies to worry about adverse selection, as they can set their prices based on an average for the market. Nevertheless, even with such interventions, insurance companies still retain the right to avoid insuring high-risk individuals if it is not financially viable, and they can't be compelled to sell insurance at low rates to everyone.