MONDAY, FEBRUARY 20, 2023
In the insurance world, there are different markets in which insurers operate. You may be familiar with the traditional market, where most policies are written. But for specific lines of coverage that insurers can’t or won’t insure in the traditional market, companies and individuals may be able to turn to the surplus and excess market for coverage.
What Is Surplus Insurance?
Surplus lines of insurance, also known as non-admitted insurance, refer to insurance coverage not available from licensed insurers within a particular state or jurisdiction. Instead, surplus lines insurance is provided by unlicensed or non-admitted insurers, also known as surplus lines insurers, which operate in other states or jurisdictions.
Who May Need Surplus Insurance?
The need for surplus lines insurance arises when traditional insurers cannot provide coverage for various reasons such as high risk or unusual coverage requirements. For example, a construction project that involves a high degree of risk due to the nature of the work or location may require insurance coverage that is not readily available from licensed insurers within a particular state. In such cases, surplus lines insurance can provide a viable solution for obtaining the necessary coverage.
Surplus lines insurers can often provide coverage for unique or unusual risks, as they have more flexibility than licensed insurers regarding underwriting and pricing policies. They are not bound by the same regulatory requirements that licensed insurers are and therefore have the ability to take on more risk. However, as non-admitted insurers, they are also not subject to the same consumer protection laws and regulations as licensed insurers. This means that policyholders may not have the same level of protection in the event of a dispute or claim.
Is Surplus Insurance Regulated?
Surplus lines insurance is regulated at the state level, and each state has its own regulations governing the placement of surplus lines insurance. In most states, surplus lines insurance must be placed through a licensed surplus lines broker authorized to transact business with non-admitted insurers. Surplus lines brokers must be knowledgeable about the products they are selling and act in their clients’ best interests.
One of the benefits of surplus lines insurance is that it can provide coverage for risks that traditional insurance policies may not cover. However, it is essential to understand that surplus lines insurance is generally more expensive than traditional insurance, as the risks are often higher and the policies are more customized. It is also important to thoroughly research the non-admitted insurer and the broker before purchasing surplus lines insurance, as the lack of regulation may lead to fraud or abuse.
How to Learn More
Surplus lines of insurance offer a valuable solution for obtaining insurance coverage for unique or high-risk situations. Reach out to Morehead Agency LLC today to learn more about surplus lines of insurance and whether this is an option for your needs.