The Excess & Surplus Lines market (E&S or surplus lines market) is a critical part of the insurance industry, and growth has accelerated as the market has become harder.
Business flow to the E&S market is up over 20%, although there is significant variation by state. Despite covid, 2020 E&S premium is growing based on early indications, according to The State of Surplus Lines Insurance: Busy Solving Risk Puzzles in a Complex World in Insurance Journal (here).
What is the Surplus Lines Insurance Market?
The Excess & Surplus Lines market (E&S or surplus lines) is the home of specialty lines insurance, where more challenging and complex risks are placed, and where underwriters and brokers can develop new coverages. Environmental coverages, Cyber Risk and Directors & Officers insurance all started in the E&S market. The market for lower hazard exposures is called the standard market (as opposed to the specialty market) or the admitted market.
Surplus lines licenses are issued state by state to E&S insurers, and brokers must also have special licenses, E&S licenses. Brokers are responsible for following a specific process, which varies slightly from state to state, for a particular account to be placed with an E&S insurer. Brokers are also responsible for collecting surplus lines taxes on each account and remitting that tax to the appropriate state or states.
Today, the E&S market is essential to ensuring that insurance is available for those unique accounts that cannot find a home in the standard market. There are a number of reasons why the standard market might decline to write an account, including:
- Unique or challenging exposure
- Adverse loss experience
- Special coverage requirements
- Additional limit requirements
Over time, some coverages and accounts move from the E&S market to the standard market, or in the opposite direction. For example, employment practices liability insurance (EPL) was written solely in the E&S market when it was first introduced. As the exposures became better understood and the underwriting and loss experience stabilized, accounts were increasingly written in the standard market. Today, EPL is often part of an admitted (standard) directors & officers (D&O) insurance policy.
The E&S market will continue to provide a valuable source for unique and challenging exposures regardless of the state of the general insurance market.
Specialty Insurance Blog – News & Commentary on Specialty Insurance – with an Emphasis on Professional Liability Insurance
Also, see the related Innovate Insurance Blog – Innovation & Entrepreneurship in Insurance