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212-784-6199 631-259-6157
NOTE 3: Defining Non-Admitted / Surplus Lines Insurance
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July 2009 - Year 1 Month 3 Note 3
Non-Admitted / Surplus Lines Insurance
The Surplus Lines insurance market (a.k.a. Excess & Surplus Lines, E&S, Non-Admitted) is
among the least understood segments in the industry. An illustration of this is the fallacy that
surplus lines insurance transactions are unregulated. In fact, most states have detailed
insurance laws governing the activities of their surplus lines companies.
Surplus lines insurers are not "licensed" in the state where insured or risk is located,
although they must be "licensed" in their state of domicile.
The surplus lines market exists due to a regulatory distinction and provides an alternative
for unusual or higher risk insurance unavailable to purchasers from licensed insurers.
Coverage may be unavailable from licensed insurers in the Admitted or Standard
marketplace due to the exposures presented by the particular account or the terms and
conditions in the coverage provided; or even in some cases the significantly higher cost. In
these cases the surplus lines market provides an alternative market with flexibility,
additional capacity and innovative underwriting. Beware, the contractual terms and
conditions become even more important to understand given additional exclusions or
sub-limits of insurance that may be present in the surplus lines market vs. the standard.
In order to place an accounts insurance with a surplus lines insurance company in a legal
fashion it must be declined by the standard market. If a broker cannot find coverage for an
account they may turn to the surplus lines market to purchase appropriate coverage.
Insurers operating in the surplus lines market are usually specialty insurers. The
participants have significant experience and expertise, including higher risk coverages and
businesses found covered in the surplus lines market.
Premiums received for risks placed in the surplus lines market are subject to a surplus lines
tax in every state. The tax for licensed insurers is included in the premium, while the surplus
lines tax is in addition to the premium. Also, many states have fees and additional
paperwork required for state tax purposes in addition to the surplus lines tax.
Insureds with coverage from licensed insurers have some protection from insurer
insolvency from state guarantee funds. State guarantee funds that provide claims payment
protection to the insured in the event of insurer default do not apply to surplus lines
coverage (except in New Jersey). Note that some state guarantee funds have low limits of
recovery that apply to commercial insureds.
A.M Best Company performs an annual survey of the surplus lines market and has found
that its solvency record is as good, if not better, than the overall industry.
July Monthly Insurance News-Report / Highlight:
Zurich's Vitale Sees Insurers at a Crossroads
Publication Date: 06/29/2009
Source: BestWire Services
Overreactions in terms of both insurance pricing and government regulation are a concern
to Mario P. Vitale, chief executive officer of global corporate for Zurich Financial Services.
"The insurance industry is at a crossroad," Vitale said in an interview with BestWeek.
Reduced investment income and the catastrophe losses of 2008, the third highest year in
cat claims, have coupled to put pressure on insurance rates. Add the turmoil of the
subprime mortgage market that led to giant American International Group Inc.'s stumbling,
and the stage is set for increased regulation.
"We are finding in 2009... the insurance industry adjusting to this, including adjusting to a
landscape that includes potentially higher regulatory environment -- which would be a
drastic change and maybe forever," Vitale said.
He said the industry is moving towards higher rates "that are absolutely necessary to deal
with many things, to the losses of investment income and the macroeconomic impact of the
world."
The hard market might be difficult to see right now, because the recession has left
commercial insurance buyers with fewer employees and fewer risks to insure. "Our
customers are smaller than they were a year before," Vitale said.
The industry needs to set adequate rates to protect its solvency, he said.
Non-Admitted / Surplus Lines Insurance
The Surplus Lines insurance market (a.k.a. Excess & Surplus Lines, E&S, Non-Admitted) is
among the least understood segments in the industry. An illustration of this is the fallacy that
surplus lines insurance transactions are unregulated. In fact, most states have detailed
insurance laws governing the activities of their surplus lines companies.
Surplus lines insurers are not "licensed" in the state where insured or risk is located,
although they must be "licensed" in their state of domicile.
The surplus lines market exists due to a regulatory distinction and provides an alternative
for unusual or higher risk insurance unavailable to purchasers from licensed insurers.
Coverage may be unavailable from licensed insurers in the Admitted or Standard
marketplace due to the exposures presented by the particular account or the terms and
conditions in the coverage provided; or even in some cases the significantly higher cost. In
these cases the surplus lines market provides an alternative market with flexibility,
additional capacity and innovative underwriting. Beware, the contractual terms and
conditions become even more important to understand given additional exclusions or
sub-limits of insurance that may be present in the surplus lines market vs. the standard.
In order to place an accounts insurance with a surplus lines insurance company in a legal
fashion it must be declined by the standard market. If a broker cannot find coverage for an
account they may turn to the surplus lines market to purchase appropriate coverage.
Insurers operating in the surplus lines market are usually specialty insurers. The
participants have significant experience and expertise, including higher risk coverages and
businesses found covered in the surplus lines market.
Premiums received for risks placed in the surplus lines market are subject to a surplus lines
tax in every state. The tax for licensed insurers is included in the premium, while the surplus
lines tax is in addition to the premium. Also, many states have fees and additional
paperwork required for state tax purposes in addition to the surplus lines tax.
Insureds with coverage from licensed insurers have some protection from insurer
insolvency from state guarantee funds. State guarantee funds that provide claims payment
protection to the insured in the event of insurer default do not apply to surplus lines
coverage (except in New Jersey). Note that some state guarantee funds have low limits of
recovery that apply to commercial insureds.
A.M Best Company performs an annual survey of the surplus lines market and has found
that its solvency record is as good, if not better, than the overall industry.
July Monthly Insurance News-Report / Highlight:
Zurich's Vitale Sees Insurers at a Crossroads
Publication Date: 06/29/2009
Source: BestWire Services
Overreactions in terms of both insurance pricing and government regulation are a concern
to Mario P. Vitale, chief executive officer of global corporate for Zurich Financial Services.
"The insurance industry is at a crossroad," Vitale said in an interview with BestWeek.
Reduced investment income and the catastrophe losses of 2008, the third highest year in
cat claims, have coupled to put pressure on insurance rates. Add the turmoil of the
subprime mortgage market that led to giant American International Group Inc.'s stumbling,
and the stage is set for increased regulation.
"We are finding in 2009... the insurance industry adjusting to this, including adjusting to a
landscape that includes potentially higher regulatory environment -- which would be a
drastic change and maybe forever," Vitale said.
He said the industry is moving towards higher rates "that are absolutely necessary to deal
with many things, to the losses of investment income and the macroeconomic impact of the
world."
The hard market might be difficult to see right now, because the recession has left
commercial insurance buyers with fewer employees and fewer risks to insure. "Our
customers are smaller than they were a year before," Vitale said.
The industry needs to set adequate rates to protect its solvency, he said.