Surplus Insurance: What's Covered?

Surplus lines insurance is a special type of insurance that covers unique risks that most companies are unable or unwilling to insure. It is a supplemental market that fills a gap in the standard insurance market by covering high-value items and uncommon or high-risk events. Surplus lines insurance is generally more expensive than regular insurance and carries additional risk for the policyholder, as there is no guaranty fund to cover claims if the insurer becomes insolvent.

Surplus lines insurance is a special type of insurance that covers unique risks

Surplus lines insurance is often purchased by businesses to cover specific risks that are not typically covered by traditional insurance companies. For example, a business may need liability coverage for a special event or to move hazardous materials. Surplus lines insurance can also be used to cover very costly items, such as an expensive art collection or a rare racehorse. In some cases, it can also provide coverage limits beyond what conventional insurers are willing to offer.

Individuals may also purchase surplus lines insurance if they are unable to obtain homeowners insurance or other types of coverage from standard insurance companies. This could include coverage for a home built on the side of a steep bank or an extremely old home. Surplus lines insurance can also be used to cover high-value items, such as an expensive art collection or a classic car collection.

Surplus lines insurance is typically sold by insurers that are not licensed in the buyer's state. These insurers have more flexibility in designing their coverage and setting their prices. However, they are still subject to federal and state regulations and must be licensed in their home state. The brokers who sell surplus lines insurance must also be licensed in their own state.

It's important to note that surplus lines insurance carries additional risk for the policyholder. In the event that a surplus lines insurer goes bankrupt, there is no guaranty fund to obtain a claim payment from, unlike with standard insurance policies. However, the insolvency rate of surplus lines insurers has been historically low.

It is generally more expensive than regular insurance

Surplus line insurance is generally more expensive than regular insurance because it covers higher and more unique risks. These risks are often too great or too uncommon for a regular insurance company to take on. For example, surplus line insurance can cover rare and expensive items such as classic cars, art collections, or antiques. It can also cover liabilities for special events, the movement of hazardous materials, or high-risk business operations.

The higher cost of surplus line insurance is due to the nature of the risks involved. These risks are often unfamiliar to licensed insurers in the standard market, or they do not meet the insurers' guidelines. As a result, surplus line insurance companies have greater flexibility in designing their coverage and pricing their policies. They are not bound by the same rate and form regulations as licensed insurers, allowing them to accept risks that licensed insurers will not. This freedom to maintain broader guidelines for accepting risks comes at a higher price.

The surplus line insurance market is heavily dominated by insurers affiliated with Lloyd's of London, with a 16.8% market share. Other top surplus line insurers include Berkshire Hathaway Insurance Group, American International Group (AIG), and Markel Corporation Group.

Surplus line insurance policies are typically purchased by businesses, but they can also be used by individuals with unique insurance needs. For example, an individual may require surplus line insurance if they own a very expensive racehorse, a rare art collection, or an extremely old home.

It is important to note that surplus line insurance is not a replacement for regular insurance. It is designed to fill a gap in the standard market by covering unique risks that most companies cannot or will not insure. As such, surplus line insurance is generally more expensive due to the specialised nature of the coverage and the higher risks involved.

It is purchased by individuals or companies

Surplus lines insurance is a special type of insurance that covers unique risks. It fills a gap in the standard market by covering things that most companies can't or won't insure. It is purchased by individuals or companies to protect against financial risks that are too great or uncommon for a regular insurance company to take on.

Surplus lines insurance can be used to cover specific extraordinary items and uncommon or high risks that are generally not covered by traditional insurance companies under standard policies. For example, individuals may purchase a surplus lines policy if they are unable to obtain homeowners insurance from a standard company or to cover very costly items, like an expensive art or classic car collection. It can also be used to insure new risks for which there is limited loss history to guide rating criteria or risks that require substantially high limits of coverage that are not offered by traditional insurers, such as an art collection stored in a museum.

Businesses buy the most surplus lines policies, usually to cover unique risks. For instance, they might need liability coverage for a special event or to move hazardous materials. It can also be used to cover business operations that pose too great a liability risk, such as a business located in an area prone to natural disasters.

Surplus lines insurance is generally more expensive than regular insurance because the risks are higher. The policies offered through the surplus lines market usually have more expensive premiums and higher deductibles. This is because surplus line insurance companies have great flexibility in designing their coverage and pricing their policies. They charge their customers higher premiums because they are insuring risks that are costly to cover.

Surplus lines insurance falls into the category of property and casualty insurance. Unlike most types of insurance, surplus lines insurance can be sold by insurers that are not licensed in the buyer's state. However, surplus lines insurers must have a license in the state where they are based, and the brokers who sell surplus lines insurance must be licensed in their own state.

It is sold by insurers that are not licensed in the buyer's state

Surplus lines insurance is a special type of insurance that covers unique risks. It fills a gap in the standard market by covering things that most companies can't or won't insure. It is generally more expensive than regular insurance because the risks are higher. Surplus lines insurance falls into the category of property and casualty insurance.

In the US, surplus lines insurance can be sold by insurers that are not licensed in the buyer's state. However, the surplus lines insurer must have a license in the state where it is based, and the brokers who sell surplus lines insurance must be licensed in their own state. This is because, in the US, insurance companies are licensed by individual states.

Surplus lines insurance carries additional risk for the policyholder. If a surplus lines company fails or becomes insolvent, there is no guaranty fund to obtain a claim payment from, unlike with standard insurance policies. However, the National Association of Insurance Commissioners (NAIC) notes that "the insolvency rate of surplus lines insurers has been historically low".

In the US, the surplus lines insurance market is dominated by insurers affiliated with the United Kingdom's Lloyd's of London insurance marketplace. Other top surplus lines insurers include Berkshire Hathaway Insurance Group, American International Group (AIG), and Markel Corporation Group.

It is not covered by state guaranty funds in the case of default

Surplus lines insurance is a special type of insurance that covers unique risks. It fills a gap in the standard market by covering things that most companies can't or won't insure. It is generally more expensive than regular insurance because the risks are higher. Surplus lines insurance falls into the category of property and casualty insurance.

Surplus lines insurance is not backed by state guaranty funds in the event of default. This means that if a surplus lines insurance company fails or becomes insolvent, policyholders may not be able to recover their claims. Unlike standard insurance companies, surplus lines insurers are not members of a guaranty association. A guaranty association protects policyholders if their insurance company becomes financially insolvent and unable to pay claims or debts.

In the case of a surplus lines insurer's insolvency, policyholders do not have access to a state guaranty fund, which is typically funded by other insurers in the event that one of them goes bankrupt. This additional risk is an important consideration when purchasing surplus lines insurance.

However, it is worth noting that the insolvency rate of surplus lines insurers has been historically low. The strong and effective state-based solvency monitoring framework helps to mitigate this risk. Nevertheless, the lack of a guaranty fund means that policyholders are exposed to a higher level of risk compared to standard insurance policies.

As a result, individuals and businesses should carefully consider their options and understand the risks involved before purchasing surplus lines insurance. While it can provide coverage for unique risks, the absence of a safety net in the form of a state guaranty fund is a significant factor to keep in mind.

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