What Is Surplus Lines Insurance?

Surplus lines insurance protects against a financial risk that is too great or too uncommon for a regular insurance company to take on. Surplus lines insuranc🎀e can be purchased by individuals or companies.

Understanding Surplus Lines Insurance

Surplus lines insurance falls into the category of property and casualty insurance. In many cases, it is used to cover relatively new risks that conventional insurers shy away from because they lack historical 𝓰data to properly price their policies.

“After the new coverage has generated sufficient data, it may become a more standard product and become available in the admitted market,” the National Associat༺ion of Insurance C♐ommissioners (NAIC) says.

Unlike most types of insurance, surplus lines insurance can be sold by insurers that are not l𝄹icensed in the buyer’s state. However, the surplus lines insurer must have a ꦍlicense in the state where it is based, and the brokers who sell surplus lines insurance must be licensed in their own state.

Surplus lines insurance carries additional risk for the policyholder: There is no guaranty fund from which to obtain a claim payment if the surplus lines insurer goes bankrupt, as is the case with standard insurance policies. A policyholder’s claim on a regular insurance policy is often paid out of a 澳洲幸运5官方开奖结果体彩网:state guaranty fund, which is funded by other insurers in case one of them goes bankrupt. However, according to the NAIC, “the insolvency rate of surplus lines insurers has been historically low.”

Who Sells Surplus Lines Insurance?

The surplus lines insurance market is heavily dominated by insurers affiliated with the United Kingdom’s 澳洲幸运5官方开奖结果体彩网:Lloyd’s of London insurance marketplace. Data from the Insurance Information Institute shows Lloyd’s insurers with 16.8% of the surplus lines market and $13.9 billion in direct premiums. Following Lloyd’s, surplus lines market share drops down to the single digits for all of the top 25 surplus lines insurers.

Examples of other top 25 surplus lines insurers include Berkshire Hathaway Insurance Group, American International Group (AIG), Markel Corporation Group, W.R. Berkley Insurance Group, Nationwide Group, Fairfax Financial (USA) Group, Chubb INA Group, and Liberty Mutual Insurance Companies.

Types of Surplus Lines Insurance

Surplus lines insurance can cover many♏ different financial hazards. It is oft🎶en used to cover what conventional insurers consider nonstandard risks.

For example, according to the Texas Department of Insurance, a business “might need liability coverage for a special event or to move hazardous materials.” Individuals may buy a surplus lines policy “if they can’t get homeowners insurance from a standard company,” the department says. “Others buy it to cover very costly items, like an expensive art or classic car collection.”

In some ca⛎ses, surplus lines insurance can also provide coverage limits beyond what conventional insurers are willing to provide.

States maintain export lists, showing the kinds of insurance that may be unobtainable through regular, state-licensed insurance companies in their state, making surplus lines coverage eligible for sale and purchase there. In California, for example, the list includes (among many other things) insurance to cover kidnap and ransom, amusement parks and carnivals, sawmills, demolition contractors, fireworks displays, and hot air balloons.

澳洲幸运5官方开奖结果体彩网:Flood insurance is also on the export list for some states and in certain circumstances. In New York, for example, surplus lines insurers may sell flood insurance if the property isn’t eligible for primary coverage by the federal flood insurance program or if the federal program won’t provide a sufficient amount of coverage.

Surplus Lines Insurance vs. Standard Insurance

Regular 澳洲幸运5官方开奖结果体彩网:insurance carriers, also called standard or admitted carriers, must follow state regulations concerning how much they can charge and what risks they can and cannot cover. Surplus lines carriers do not have to follow these regulations, which allows them 𒀰to take on higher 🅷risks.

A surplus lines insurer is sometimes re✱ferred to as a non-admitted o🐟r unlicensed carrier, but this does not mean that their policies aren’t valid or that they aren’t regulated to some extent. The designation only means that they are subject to different regulations from those that govern admitted or standard carriers.

Insurers headquartered outside the United States, called 澳洲幸运5官方开奖结果体彩网:alien insurers, make up much of the surplus lines market.

The Bottom Line

Individuals and businesses buy surplus lines insurance to protect themselves against financial risks that are too large or too rare for a regular insurance company to be willing to take on. Unlike most types of insurance, surplus lines insurance can be sold by insurers that are not licensed to do business in the buyer’s state. They are not covered by state guaranty funds in the case of default.