Exclusively from Foa & Son
One symptom of changing market conditions is the flow of insurance business into or out of the excess and surplus lines insurance segment. It’s worth spending a few words talking about what this segment actually is, and what it does.
Standard or admitted insurance companies write most insurance in the U.S. These are insurance companies that are licensed by their state of domicile and are authorized to write specific lines of insurance. These companies are bound by state rate and form regulations, and are strictly regulated to protect policy holders from a variety of illegal and unethical practices, including fraud and insolvency. Admitted carriers also contribute to state guarantee funds which pay for losses if an insurance carrier does become insolvent.
Excess and surplus lines (E&S) carriers, sometimes also referred to as non-admitted carriers, are not required to be licensed by the state but are allowed to do business there. They can’t write insurance that is typically available in the admitted market and may usually only write a policy if it has been rejected by admitted carriers. Policyholders are not protected by the state guarantee fund, and may also pay higher taxes.
Most top E&S carriers are financially stable companies. They are not bound by most of the rate and form regulations imposed on standard market companies, which gives them great flexibility to change coverages offered and rates charged without the time constraints and financial costs associated with the formal filing process admitted carriers are subject to. This can be good for both the company and the policyholder who is faced with the need to find insurance coverage for an unusual or difficult to place risk.
If you are presented with an E&S quote, it will likely be because:
• Your risk does not meet the guidelines of the standard market due to age, location, loss history, policy cancellation or some other factor;
• The policy limits you need exceed what’s available in the standard market;
• Your risk is “outside the box” of what the standard carriers are comfortable writing. Lloyds of London is famous for insuring noses, limbs and other body parts; other examples might include pet insurance, coverage for event cancellation (see the last topic), etc.;
• Your risk is one that standard carriers are just not comfortable covering. Usually these are large exposures with high potential for loss such as carnivals or amusement parks, demolition contractors, and so forth.
Your insurance will never be placed with an E&S company without you first receiving a written disclosure.
E&S insurance companies fill an important niche in the commercial insurance world and, properly used, can be a valuable resource for you.