Excess and surplus lines insurance (E&S) is a specialized market for insuring risks that traditional insurance companies won’t cover. Here’s what makes it unique:
Why Choose E&S Insurance?
- Unusual or High-Risk Situations: E&S insurers cater to risks that fall outside the standard market, such as:
- Properties in disaster-prone areas
- Businesses with unique liability exposures
- Hard-to-place individuals (like those with prior claims history)
- Highly Customized Coverage: E&S policies can be tailored with flexible terms and conditions to match the specific needs of the insured.
Characteristics of E&S Insurance:
- Surplus Lines Carriers: Insurance companies in the E&S market are not licensed to do business in the state the buyer is in. They have more freedom in rate setting and policy forms.
- Less Regulation: E&S insurers face less stringent regulation than standard insurers, allowing them to be more flexible and innovative.
- Must Use a Surplus Lines Broker: You can’t buy E&S insurance directly. You need a specialized broker licensed to work with these insurers.
- Typically More Expensive: Due to the higher risk and customization, E&S premiums are often more expensive than standard insurance.
When is E&S Insurance Used?
- No Other Options: Often, it’s the only solution when standard insurers decline coverage due to the risk profile.
- High-Value Assets: Might be used to insure properties exceeding standard insurers’ coverage limits.
- Specialized Businesses: Companies with unusual operations or liabilities may need the tailored coverage E&S provides.
Important to Remember:
- E&S insurers aren’t backed by state guaranty funds (which protect policyholders if a standard insurer goes bankrupt). It’s crucial to make sure the surplus lines insurer is financially sound.