Excess and surplus (E&S) lines insurance is a type of coverage for financial risks that are too high to insure through the standard market and is obtained from an insurer that is not licensed in your state.
Excess and surplus lines is a form of insurance that covers businesses with high risk or an adverse loss history that can make it hard for them to obtain coverage in the traditional insurance marketplace. Common areas of coverage include casualty insurance in high-risk areas, and professional liability within high-risk industries.
While E&S insurance is sold by licensed insurance agents in your state, the insurance carrier that offers the policies themselves is not licensed within your state. This gives a surplus lines insurer greater flexibility to place risks that are more difficult to cover through the ordinary insurance market.
The biggest differences between standard insurance vs. excess or surplus lines policies are the amount of regulation, the flexibility in writing policies, and your state’s involvement in guaranteeing coverage.
With standard insurance companies, also known as admitted insurers, each state’s department of insurance (DOI) reviews and regulates each company’s insurance forms, rates, and financial standing. Because they’re regulated by your state’s insurance commissioners, they have less flexibility in the types of risks they cover.
Excess and surplus lines insurance companies, also known as non-admitted insurance, are regulated within their home states but aren’t as strictly regulated in states where they sell policies. This gives these companies the ability to design insurance products that cover a greater amount of risk.
Another key difference is that policies sold in the excess and surplus insurance market, through a licensed surplus lines broker, won’t be backed up by your state’s guaranty fund that pays claims of policyholders if an insurer is insolvent or goes out of business.
While these terms are sometimes used interchangeably, commercial umbrella insurance is not the same as excess liability and surplus lines. Excess liability coverage is for risks that can’t be insured through underwriting in the regular insurance market and must be obtained from surplus lines companies.
Commercial umbrella insurance provides excess liability coverage in addition to your regular liability insurance policies, such as general liability or commercial auto insurance. A commercial umbrella policy offers financial protection in case you file a claim that exceeds the coverage limits of one of these underlying policies.
Small businesses may be required to pursue E&S insurance depending on their industry and how long they've been in business. A few of the most common industries that need E&S insurance include:
Many insurance carriers will be hesitant to offer coverage for these types of high-risk businesses due to their regular use of dangerous equipment or employees working in hazardous settings. In addition to these industries, standard carriers may not offer coverage for businesses with less than three years’ experience because their short track record is viewed as "high-risk".
Regardless of the situation, many of these businesses will rely on E&S insurance as their only coverage option when admitted insurers are unable to offer protection.
You can buy excess and surplus lines insurance from any number of insurance agents in your state who are licensed to sell excess lines coverage. There are several things to consider in deciding whether to pursue insurance with an admitted vs. non-admitted carrier.
Many small business owners obtain their regular liability insurance through the admitted market, then access the surplus lines market for risks that are difficult or too expensive to place through their regular provider.
A business located in an area prone to unique risks, such as hurricanes or wildfires, might insure some of these risks through surplus lines companies because the specialty lines market is the only way to obtain coverage.
As you craft your risk management plan, whether you obtain coverage through standard carriers or surplus lines carriers, it’s important to check the financial rating of your provider.
Credit rating firms such as A.M. Best assign grades to insurance companies so you can easily compare the stability of companies within the insurance industry. A non-admitted carrier with an A++ rating could be a better option for your business than an admitted carrier with a C or lower rating.