Businesses in high-risk industries often need coverage that standard carriers can’t provide. Increasingly, agents turn to the excess and surplus (E&S) market to find policies for them. In 2021, total E&S premiums grew by 22%, reaching $51 billion.
Expanding your product offerings into the E&S market can help you better serve your clients. Let’s explore how E&S insurance works and the types of businesses that need E&S insurance coverage.
E&S insurance is provided to businesses facing risks that admitted carriers won’t adequately insure. It's usually necessary when companies operate in industries with high liability potential or uncommon risks.
Non-admitted carriers offer E&S insurance. They’re strictly regulated in their domiciled states, but they don’t have licenses in the states where they provide coverage. As a result, their policies aren’t subject to form or rate regulations.
The lack of form restrictions lets non-admitted carriers write policies using wording that matches unusual or excessive risks. Meanwhile, the freedom from rate regulations lets them collect premiums sufficient to cover their elevated exposure.
For example, a landscaper needs a general liability policy with an aggregate coverage limit of $3 million, but admitted carriers won’t offer them more than $2 million. Subsequently, their insurance agent turns to the E&S market and finds a non-admitted insurer willing to meet their client’s needs.
The primary difference between standard and E&S insurance is that policies in the standard market come from carriers licensed in the state where they provide coverage. Meanwhile, E&S policies come from non-admitted insurance carriers without those licenses.
Non-admitted carriers can cover a wider range of dangers and higher levels of risk. However, those policies are usually more expensive as well. Non-admitted carriers typically charge more in premium rates to compensate for their higher risks.
Conversely, admitted carriers must create insurance products that follow guidelines from their state’s department of insurance (DOI) to retain their licenses. These regulations prevent them from creating insurance products for businesses facing atypical dangers or elevated risk levels.
Finally, standard insurance policies are guaranteed by state funds. When admitted carriers go bankrupt, their state government may pay any outstanding claims. Non-admitted carriers don’t have a license in the states where they offer coverage, so they don’t share that benefit.
However, there are similarities between the two markets. For example, non-admitted carriers are just as financially stable as their equivalents in the standard market.
Businesses that need E&S insurance usually operate in industries with high risks. For instance, insurance agents frequently turn to the E&S market to get coverage for clients working in construction.
Contractors face several significant dangers that are impossible to eliminate. Much of their work involves using heavy machinery in hazardous conditions on customer property.
As a result, businesses like electricians, landscapers, and roofers are at constant risk of severe physical injury. In addition, any accidents that could harm them or their employees can also cause significant damage to their customers’ property.
Alternatively, businesses may require E&S insurance to cover risks that standard insurance policies don’t address because they're too unique, novel, or complex.
For example, cannabis and hemp companies usually need E&S insurance. They face complicated and unprecedented regulatory risks due to shifting state and federal laws that prevent standard carriers from writing policies for them.
E&S insurance policies aren’t subject to the same rate and form regulations that restrict insurance on the standard market, but the companies involved are still highly regulated. They’re just subject to different rules than their admitted counterparts.
While non-admitted carriers don’t carry state licenses, all domestic insurance companies must have licenses in the states where they reside. So, they’re still subject to state oversight and must meet local regulatory requirements.
Alien carriers domiciled in other countries don’t have to hold a license from a state. However, they're subject to oversight from the National Association of Insurance Commissioners (NAIC), International Insurers Department, and Surplus Lines Working Group.
In addition, agents and brokers who wish to offer E&S insurance products need licenses. To maintain them, agents must confirm that each non-admitted carrier they work with meets state criteria and sends surplus lines premium taxes to its home state.
E&S insurance is usually more expensive for insureds than standard insurance. Because non-admitted carriers write E&S policies to cover more risk than admitted carriers are willing to accept, their premiums are generally higher.
However, the actual cost varies significantly depending on the policy type, covered risks, and business. The only way to determine how much an E&S insurance policy will cost is to request a quote.
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