You Might Need Surplus Lines Insurance – Even if You’re Not a Celebrity

surplus lines insurance

You’ve heard of celebrities who buy insurance on signature body parts, those fall in surplus lines market.

Some examples are Keith Richard’s middle finger ($1.6 million), Dolly Parton’s Breasts ($3.8 million), Jennifer Lopez’s butt ($27 million) and Mariah Carey’s legs ($1 billion). These transactions take place in what’s called the surplus lines market for surplus lines insurance.

Lloyd’s of London (pictured above) is the most famous entity making transactions in this market. But your business may also need to access the surplus lines market at some point.

According to the Wholesale & Specialty Insurance Association (WSIA), specialty and surplus lines companies are often called the “safety valve” of the insurance industry. They fill the need for coverage in the marketplace by insuring those risks that are declined by the standard underwriting guidelines and pricing processes of admitted insurance carriers. With the ability to accommodate a wide variety of risks, the wholesale, specialty and surplus lines market acts as an effective supplement to the admitted market.

How It’s Used

Surplus lines premium volume was over $24 billion with more than 2.6 million transactions through June 2021. An increase of 21.9% for premium and 7.2% for transactions year over year, according to the U.S. Surplus Lines Service and Stamping offices.

These numbers represent a vast number of insureds. Those who without the surplus lines market, would have a difficult time obtaining insurance. That is, if they were able to secure it at all.

The surplus lines market plays an important role in providing insurance for hard-to-place, unique or high capacity (i.e., high limit) risks. Surplus lines insurers are able to cover unique and hard-to-place risks. Because, as non-admitted insurers, they can react to market changes and accommodate the unique needs of insureds who are unable to obtain coverage from admitted carriers.

This results in cost-effective solutions for consumers that are not “one size fits all,” but are skillfully tailored to meet specific needs for non-standard risks.

Risks typically written in the surplus lines market fall into three basic categories:

  1. Non-standard risks, which have unusual underwriting characteristics.
  2. Unique risks for which admitted carriers do not offer a filed policy form or rate.
  3. Capacity risks where an insured seeks a higher level of coverage than most insurers are willing to provide.

Although surplus lines insurers are “non-admitted,” that does not mean they lack regulation. Each surplus lines insurer must be admitted (licensed) in one of the 50 states. And they must meet that state’s financial solvency requirements. The state of domicile becomes that insurer’s regulator.

Surplus lines companies are able to offer special coverages because they are largely free of rate and form restrictions that make it difficult for standard companies to write the risk. Their flexibility allows them to design policies that meet unique customer needs, unlike other standard insurance companies or insurance marketplaces.

Talk to Us About Surplus Lines Insurance

Sometimes a small change in your business strategy creates a need to access the surplus lines insurance market. For instance, if a contractor installs kitchen cabinets in rental apartment buildings, he probably buys liability coverage in the standard market or standard insurance.

However, if he takes a similar job for condominiums, he may need surplus lines coverage for liability. Why? Because his potential liability is greater. If there were a construction defect, the contractor could be sued by each condo owner. Rather than just one building owner.

If your business activity has changed, give us a call. We’ll let you know if we need to make any adjustments in your insurance program.