Surplus Lines Insurance

Surplus lines insurance markets are needed to provide alternatives for unusual or higher risk insurance not offered by licensed insurers or insurance companies in the state a customer lives. There are often situation where insurance coverage is unavailable from licensed insurers because of the risk exposures or because coverage terms and conditions don’t provide the specific insurance a customer needs. When a customer isn’t able to find insurance coverage from licensed companies, the surplus lines market provides a choice and flexibility. Surplus lines underwriters then to be creative and innovative with the products they have to offer.

There are several different names the surplus lines insurance market may go by, including the following:

  • Non-admitted Market
  • Excess and Surplus Lines Market
  • E&S Market

The excess and surplus lines market is one of the most confusing markets in the property and casualty insurance industry. The most common misunderstandings are that surplus lines insurance transactions are not regulated and the insurers and insurance companies are not licensed.

The truth is every state has detailed insurance laws and regulations which govern the activities of surplus lines insurance transactions within their states. While it may be true that the surplus lines insurers and insurance companies are not specifically “licensed” in the state where an insurance policy is issued, they are licensed the state where the insurance company is headquartered. Surplus lines insurers have to be “approved” in every state they offer insurance coverage. Each state has insurance jurisdiction and surplus lines laws established just to protect policyholders and control eligibility standards of surplus insurance carriers.

The surplus lines insurer or insurance company may not be licensed in the state a policy is sold, but the Brokers appointed as a surplus lines broker must be licensed to transact insurance business in the state the policy is sold. Most surplus lines insurance brokers are wholesale brokers and many specialize in specific niche markets offering surplus lines policies. There brokers most often have the authority to underwrite on behalf of insurance company.

Insurance companies that offer surplus lines products are usually small, specialty insurance companies or a specific special department of a larger insurance organization. In most cases, the people working in the surplus line markets have significant and often specialized experience and expertise with a segment of an unusual coverage or specific business.

While I worked in a brokerage an example of surplus lines insurance products I arranged were for houseboats. I live near two major rivers and people in my part of the country enjoy living on board. This coverage just isn’t easily available from the standard-everyday insurance companies. I brokered many houseboats to a surplus line company licensed in another state because they offered nice policies for our houseboat owners.

In order for an insurance agent or broker to place an account in the surplus lines market the account must declined by the standard market insurers. When an agent or broker can’t find insurance coverage on a unique or high risk account then they may look at the surplus lines market in order to offer their customer the appropriate coverage.

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