Insurance for Everything Else: Excess and Surplus

Insurance is one of the most readily available financial services in the market place.  Nearly everyone needs it in some form or fashion, but what if your insurance shopping has come up empty so far.  This may happen for several reasons; lack of prior coverage, the coverage you need is unique and hard to find, you have had several losses in the past and do not qualify for most insurance carriers, or any number of other reasons.  If you or your business falls into one of these categories, then fear not!  Specialty insurance companies offer what is called Excess & Surplus lines to cover everything that does not qualify under normal insurance guidelines.

Excess & Surplus Insurance can be divided into 3 major market segments; each with an issue that keeps the insurance from being written by a standard company:

  1. Capacity Risks: These deal with companies with insurance needs that exceed a standard insurer’s limits. Companies with heavy manufacturing, large amounts of inventory, or a large liability exposure would fall into this category; often these companies will require several million dollars of coverage. Examples:
    • Passenger airlines
    • Large department store storage warehouses
    • Oil refineries
    • Hotels
    • Amusement parks
  2. Non-Standard Risks: This sort of risk involves those who need more flexible underwriting practices to write their policy. If you have ever had an issue finding car insurance after a wreck or too many traffic violations, then you would be considered a non-standard risk. This insurance is designed to help those with high risk factors or bad loss histories find a coverage plan that will benefit the customer as well as the company and requires a more involved approach to writing the policy. Examples:
    • A home with a high-risk breed of dog (Pit-bull, Rottweiler, Chow, etc.)
    • A driver with 5 moving vehicle violations in the past 12 months
    • A business that has filed for bankruptcy recently, or has never held insurance before
    • Any person or business who had their last insurance policy cancelled for non-payment
    • Certain bars and nightclubs
  3. Unique Risks: This could be called “everything else insurance” since it deals with the businesses that do not fit into a specific category. Standard companies work to efficiently provide insurance to most every business, but this means that they will not be as able to work with a business that needs its coverage custom tailored to a unique business model. E & S insurers can design one-of-a-kind plans for a business that does not fit into a specific mold. Examples:
    • Pet Insurance
    • Communications satellite
    • Companies with environmental risks
    • Daycare run out of your home
    • Performers

This group of risks is also called “main street” business, since they include entertainment and much of the nightlife scene.  Like any other coverage type, there are pros and cons to the E & S market.  The most important benefit is that your business, home, auto, etc. can be insured.  Actually being able to get coverage where you would not normally qualify for it is the essential, but the ability to custom tailor the policy to your needs is an added benefit of this market.

Here is the other side of the coin.  Excess & Surplus dealers are regulated by the state, but do not need to be licensed.  This means that the customers are not protected by the State Insolvency Fund, which covers insurance claims in the event that the insurer defaults on the claim payout.  Being outside of the state’s insurance guidelines is what allows these E & S carriers to write high risk and unique businesses, but it also keeps the state from covering any lapses by the insurance companies.

The good news is that, in general, these E & S companies are just as financially sound, if not more so, than the standard providers.  Each of these insurers is required to report its financial standings to the states in which they operate each year to show that they are not at risk for becoming insolvent, or unable to pay for claims. If you find yourself in need of this specialized coverage, do some research and find a company with a strong financial stability and good claim payment history before buying.



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