Excess & Surplus Lines Frequently Asked Questions                                                           En Español

• What is Excess & Surplus Lines Insurance?
• What is an admitted carrier or standard lines carrier?
• What is a non-admitted carrier and how is it different from an admitted carrier?
• Why am I insured by an E&S company?
• Why does the disclosure on my policy state that the policy is written by a non-licensed or non-admitted insurance carrier and what does that mean?
• Is the E&S market regulated?
• Why are the premium prices higher?
• Are there differences in coverage?
 
What is Excess & Surplus Lines Insurance?
Excess and surplus lines insurance is a segment of the insurance market that allows consumers to buy property and casualty insurance through the non-admitted market. It grew out of the need for those that needed insurance coverage, but that the standard carriers (or admitted carriers) elected not to cover, for a variety of reasons. In other words, when a standard carrier decides not to write a policy, you may be able to find insurance coverage in this segment of the industry. It is also referred to as E&S, specialty lines, surplus insurance, and hard-to-place business.

The E&S industry is comprised primarily of small to mid-sized companies writing what is referred to as "main street" business. The small contractor, the owner of an older building in an undesirable part of town, and so on, are the staples of the business. A few large organizations will write the oil refineries, aircraft liability, property coverage on a communications satellite, etc. But for the most part, the industry is dominated by smaller companies.
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What is an admitted carrier or standard lines carrier?
An admitted carrier or standard carrier is an insurance company that has received a license from the state department of insurance giving the company the authority to write specific lines of insurance. These companies are also bound by rate and form regulations, and are strictly regulated to protect policy holders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due their policyholders.
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What is a non-admitted carrier and how is it different from an admitted carrier?
A non-admitted carrier is not licensed by the state, but is allowed to do business in that state. Sometimes, non-admitted carriers are referred to as unlicensed carriers; however, non-admitted carriers are financially stable companies that are regulated in a round-about way.

Most states require that non-admitted carriers submit financial information, articles of incorporation, list of officers, and other general details. They also cannot write insurance that is typically available in the admitted market, they are not protected by the state guarantee fund, may pay higher taxes, may only write a policy if it has been rejected by three different admitted carriers, and the agent placing the business must have a surplus lines license. States also maintain a list of approved surplus lines companies, and policies can only be written by companies on this approved list.

Non-admitted carriers are not bound by most of the rate and form regulations imposed on standard market companies, allowing them the flexibility to change the coverage offered and the rate charged without time constraints and financial costs associated with the filing process. This is good for both the company and the policyholder.
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Why am I insured by an E&S company?
Most likely, your policy is written by an E&S carrier because the standard carriers have elected not to cover your insurance needs. The reasons for this vary, but could include the following:

The risk does not meet the guidelines of the standard market due to age, location, loss history or cancellation.
The policy limits exceed the guidelines for the standard market.
The risk is "outside the box" of what the standard carriers are comfortable writing. Sometimes, this is referred to as an "unusual risk", as there is just no other way to describe pet insurance, coverage for a hole-in-one event, protection for an amusement park, etc.
The risk is "extraordinary" and the standard carriers may not be comfortable covering such a risk. Usually these are very large exposures with equally high potential for loss such as aviation liability insurance, protection for a demolition business, etc.
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Why does the disclosure on my policy state that the policy is written by a non-licensed or non-admitted insurance carrier and what does that mean?
When your policy is written by a non-admitted carrier, a disclosure of that is required by law. What it means to the policy holder is that IF the carrier were to become insolvent, they are not eligible for recourse through the state guarantee fund. However, studies show that the percentage of non-admitted carriers that become insolvent is lower than the percentage of admitted carriers that suffer the same fate. The key consideration is to do business with those organizations that are financially strong and have the ability to pay claims when a covered loss occurs.
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Is the E&S market regulated?
As mentioned earlier, the E&S market is regulated in a different fashion than licensed or admitted companies. While the amount of direct regulation is less, specifically in the forms used and the rates charged, the E&S industry is still watched very closely. They also cannot write insurance that is typically available in the admitted market, they are not protected by the state guarantee fund, may pay higher taxes, may only write a policy if it has been rejected by 3 different admitted carriers, and the agent placing the business must have a surplus lines license. States also maintain a list of approved surplus lines companies, and policies can only be written by companies on the approved list.
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Why are the premium prices higher?
All insurance companies charge a premium on the potential exposure to loss. The unique thing about this business is that insurance carriers have to price their product before they know how much they are going to pay for losses. As the potential of loss, or risk, increases, so does the price. As a general rule, a policy purchased from a non-admitted company will cost more because the risk is greater.
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Are there differences in coverage?
Perhaps. Since the forms used by non-admitted carriers are not filed, there can be some significant differences in the coverage provided. Each company may have developed a particular coverage form or endorsement to meet its specific needs. It is ALWAYS a good idea to read your policy carefully and ask your agent or broker to explain those terms and conditions you don't understand.
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