Excess or surplus lines insurance carriers are “non-admitted insurers” and that simply means they sell policies that are not backed by your state. These carriers typically don’t fall under traditional insurance regulations. Although some states do regulate them, the rules and regulations they follow are far less strict than those admitted carriers must adhere to.
Now that we have the insurance lingo out of the way – let’s break it down as to why we often use an excess lines carrier for our clients.
As noted above, admitted carriers are highly regulated by the Department of Insurance in the states which they sell insurance. That means the state regulates how their policy forms are written and even, at times, their pricing structure. What’s important to note, if the admitted insurance carrier is unable to financially cover their claims, the state will cover them. Kind of like FDIC insurance with banks – there’s a backup plan for the buyer.
BUT…Admitted carriers want the cream of the crop when it comes to who they insure. If they are to keep their rates within the scope of the state’s requirements, they cannot afford to have losses beyond what they’ve calculated is the “norm”.
This is where non-admitted carriers come in. Some examples of risks covered by non-admitted carriers:
- A property that is vacant or is in disrepair – both red flags for an insurance carrier because the likelihood of something happening that will trigger a claim is high.
- A company with repeat claims showing the carrier that they aren’t remediating the problem – this could be constant workers’ comp claims for back injuries, water damage claims because the roof needs updated, or auto claims because they aren’t vetting their drivers or employees lack proper training.
- A property that is in a high-risk area – such as coastal property that suffers frequent hurricanes, or areas that see frequent wildfires.
- Or it could just be you have a business in an area where there are no admitted carriers who want your type of business – such as roofing contractors, bars & taverns, tree removal organizations, deep sea fishing companies. Often, we see carriers move out of states due to a string of high losses, or simply not cover one line of business such as property, liability or workers’ comp – like any business, they need to protect their bottom line.
- Insurance for non-US citizens or foreign companies.
What does this mean for you, the buyer, when your only option is a non-admitted carrier?
- Because non-admitted carriers have far more flexibility than admitted, you can insure a property or business that otherwise couldn’t be covered. Your insurance broker should always check all the options and determine the BEST route for you and your company.
- Not all admitted carriers are created equal. You’ll often see ratings from A++ down to F, and just like school, grades matter. An A+ rated excess lines carrier is better than a C admitted carrier when placing business. But if you have a choice to go with an admitted carrier it’s always wise to do so.
- You may have to pay your premium in full with a non-admitted carrier. The rates are also often significantly higher which makes sense because they have to cover the gap between income and claims just like an admitted carrier.
- If the non-admitted carrier becomes insolvent you have no recourse when it comes to recovering claim dollars. But at Power Risk Management we only work with top rated carriers that are highly vetted in an effort to reduce the chance of a carrier’s insolvency.
For more information about insurance for your business or your home and auto, please reach out to one of our licensed insurance brokers at Power Risk Management.
Chicago Office: 5343 W. Devon Avenue, Chicago, Illinois 60646 | 773-273-8777
Bourbonnais Office: 1410 Argyle Ln N, Bourbonnais, IL 60914 | 815-922-4754
Denver Office: 1400 16th Street, Suite 400, Denver, Colorado 80202 | 720-779-1190
*The content in this article is for information purposes only and should not be construed as legal advice.