Surplus Insurance Carrier: What's The Deal?

A surplus insurance carrier, also known as a non-admitted or unlicensed carrier, provides coverage for individuals or businesses with unique insurance needs that cannot be met by traditional insurance companies. This type of insurance is often used to cover specific, extraordinary items and uncommon or high-value risks, such as an expensive art collection or a rare antique. Surplus lines insurance is generally more expensive than regular insurance due to the higher risks involved. These policies are not licensed or regulated in the same way as traditional insurance, giving them more flexibility in designing and pricing their policies.

Surplus insurance carriers are unlicensed, non-admitted insurance companies

Surplus lines insurance falls under property and casualty insurance and is often used to cover new risks that conventional insurers avoid due to a lack of historical data for pricing. These policies are sold by insurers that may not be licensed in the buyer's state but must be licensed in the state where they are based. The brokers selling these policies must also be licensed in their own state.

Surplus lines insurance carries additional risk for the policyholder as there is no guarantee fund to fall back on if the insurer goes bankrupt, unlike with standard insurance policies. However, the insolvency rate of surplus lines insurers has been historically low.

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

Surplus lines insurance is often used by individuals or businesses who cannot obtain coverage from standard insurance companies or need coverage for high-value items like expensive art or classic car collections. It can also provide coverage limits beyond what conventional insurers offer.

While surplus lines insurers are unlicensed and non-admitted, their policies are still valid and regulated to some extent. They are subject to different regulations than those governing admitted or standard carriers, allowing them to take on higher-risk policies.

They cover unique risks that are not covered by traditional insurance companies

Surplus insurance carriers, also known as surplus line producers, are licensed to procure policies from insurers that are not licensed in the policyholder's state. This is often because the policyholder's needs are too unusual or high-risk for a traditional insurance company to take on.

Surplus insurance covers specific extraordinary items and uncommon or high risks that are generally not covered by traditional insurance companies. For example, surplus insurance can be used to cover very costly items, such as 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. For instance, an ax-throwing business may need to get property and liability coverage from a surplus carrier because the industry is still new and involves a higher risk of damage or injury.

Surplus insurance can also provide coverage limits beyond what conventional insurers are willing to provide. For example, a business might need liability coverage for a special event or to move hazardous materials. In California, the export list includes insurance to cover kidnap and ransom, amusement parks and carnivals, sawmills, demolition contractors, fireworks displays, and hot air balloons.

Surplus insurance carriers are also able to provide coverage for risks that are too high for traditional insurers. These are known as "high-capacity risks". For example, Lloyd's of London has covered Bruce Springsteen's voice, David Beckham's legs, and the Titanic in 1912.

Surplus insurance carriers are not regulated by state insurance departments

Surplus insurance, also known as surplus lines insurance, is a type of insurance that covers financial risks that are too great or uncommon for a regular insurance company to take on. It is often used by individuals or businesses with unique insurance needs, such as those seeking coverage for costly items like expensive art or classic cars, or those who have been rejected by traditional insurance companies due to past claims or their location in an area prone to natural disasters.

The surplus lines market is a unique segment of the property and casualty insurance industry, consisting of non-admitted specialized insurers covering risks not available within the admitted market. This market is dominated by insurers affiliated with Lloyd's of London, with a 16.8% market share, followed by other top insurers with single-digit market shares.

While surplus lines insurance provides coverage for risks that traditional insurance companies may not, it also carries additional risks for the policyholder. There is no guaranty fund to fall back on if a surplus lines insurer goes bankrupt, as is typically the case with standard insurance policies. Therefore, it is important for individuals and businesses to carefully review the coverage offered and understand the risks involved before purchasing a surplus lines insurance policy.

They are generally more expensive than regular insurance

Surplus insurance, also known as surplus lines insurance, is a special type of insurance that covers unique risks that are generally not covered by traditional insurance companies. It is generally more expensive than regular insurance because it covers higher risks. This type of insurance is often used to protect against financial risks that are too great or too uncommon for a regular insurance company to take on.

Surplus lines insurance falls into the category of property and casualty insurance. It is often used to cover new risks that conventional insurers avoid due to a lack of historical data to properly price their policies. These new and innovative insurance products are typically difficult to price using common actuarial methods. As a result, surplus lines insurance policies tend to have more expensive premiums and higher deductibles.

Another factor contributing to the higher cost of surplus lines insurance is the lack of guaranty fund protection. In the event that a surplus lines insurer goes bankrupt, there is no guaranty fund from which to obtain a claim payment, unlike with standard insurance policies. This additional risk for the policyholder is reflected in the higher premiums charged by surplus lines insurers.

Furthermore, surplus lines insurance provides coverage for specific extraordinary items and high-value assets. For example, individuals may purchase surplus lines insurance to cover expensive art collections or classic car collections. The specialised nature of this coverage and the higher value of the insured items contribute to the higher cost of surplus lines insurance compared to regular insurance.

Overall, the higher cost of surplus lines insurance compared to regular insurance can be attributed to the higher risks covered, the lack of guaranty fund protection, the specialised nature of the coverage, and the higher value of the insured items.

Surplus insurance carriers are not protected by state guaranty funds

Surplus lines insurance is a type of insurance that protects against financial risks that are too great or uncommon for a typical insurance company to take on. It is available to both individuals and businesses and is generally more expensive than regular insurance. Surplus lines insurance falls under the category of property and casualty insurance and is often used to cover new risks that conventional insurers avoid due to a lack of historical data for pricing policies. Unlike standard insurance, it can be sold by insurers that are not licensed in the buyer's state, making it more flexible in terms of policy design and pricing.

However, one significant difference between surplus lines insurance and standard insurance is the lack of protection provided by state guaranty funds. State guaranty funds are safety nets administered by U.S. states to protect policyholders in the event that an insurance company defaults on benefit payments or becomes insolvent. These funds are financed by insurance companies that sell insurance within a given state, and they exist in all 50 states, Puerto Rico, Washington, D.C., and the U.S. Virgin Islands.

While state guaranty funds provide assurance to policyholders of licensed insurers, they do not extend the same protection to surplus lines insurance. Surplus lines insurance carries a higher risk for the policyholder because there is no guaranty fund to fall back on if the insurer goes bankrupt. This means that if a surplus lines insurer becomes insolvent, policyholders cannot rely on the state guaranty fund to obtain a claim payment.

The absence of protection from state guaranty funds is a crucial distinction between surplus lines insurance and standard insurance policies. Standard insurance policies are backed by these funds, ensuring that policyholders receive their rightful compensation in the event of insurer insolvency. However, in the case of surplus lines insurance, policyholders bear the risk of the insurer's financial stability.

Despite the lack of protection from state guaranty funds, the insolvency rate of surplus lines insurers has historically been low. Surplus line insurers have a strong track record of financial solvency, and their policies are valid and regulated, albeit by different standards than those governing admitted or standard carriers.

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