For the most part, the insurance industry uses standard plan types and underwriting guidelines, which are adapted to suit the different types of coverage found within the insurance market. Excess and surplus insurance companies fill niche areas within different sectors of the insurance market by insuring conditions that exceed or fall outside standard underwriting guidelines.
Excess & Surplus Insurance Market
Insurance companies specialize in insuring people and businesses against different types of risk. The type of risk involved plays a significant role in determining the types of coverages available and the conditions attached to a policy plan. Risks that fall outside the norm place standard insurers at a level of risk that exceeds their ability to cover them. The excess and surplus insurance market — also known as E&S lines -- specializes in insuring the types of risks that standard insurers can’t cover. In effect, the excess and surplus insurance sector acts as a safety net by providing needed coverage for professionals, businesses and assets that carry a high or unusual degree of risk.
The specialty niches filled by excess and surplus insurance companies enable them to design customized policy plans that meet the needs of their customers. In cases where a customer has unique coverage needs, has little to no insurance history or falls outside standard underwriting requirements, excess and surplus insurers can offer the needed coverages with rates that suit the type of risks involved. Also known for serving the “main street” sector within the business industry, E&S insurance lines of coverage include building contractors, aircraft liability and professional liability as well as hotels, bars and restaurants.
Unlike standard insurance carriers, excess and surplus insurers are not state-licensed, but are required to follow certain state regulations. Excess and surplus carriers must register with state regulation agencies as well as provide financial information regarding their companies. As state regulations can vary from one state to another, some E&S insurers may pay higher taxes than standard insurers. Some states only allow E&S carriers to insure customers who’ve first been turned down by standard insurers. With standard insurance carriers, state licensing regulations typically impose rate and coverage restrictions. As excess and surplus carriers don’t require state licensing, this enables them to provide a range of coverages and rates within stable and changing market climates.
Excess and surplus insurance coverage falls within three general categories known as unique risks, nonstandard risks and capacity risks. Unique risks involve insurance needs that fall outside a standard market’s coverage and rate limits. Nonstandard risks require flexible underwriting procedures not practiced or permitted within the standard market. Capacity risks involve large risks and large coverage amounts not available through standard insurers. In many cases, E&S carriers are not covered by a state’s guarantee fund due to the high risk factors that define their line of business within an insurance market.