An excess and surplus lines insurance policy is a type of insurance policy generally used to insure someone or something that has been declined by standard insurance carriers. Excess and surplus lines insurance policies are not regulated in the same way by state insurance departments.
An excess and surplus lines policy is a type of insurance purchased outside of the standard market. The term “excess” refers to extra coverage above what is required by the primary policy, while “surplus” refers to coverage beyond what the primary policy provides. The term “lines” refers to specific types of risk, such as home or auto insurance.
There are many types of excess and surplus lines in insurance that may be necessary for your business. These include:
- Excess Interest Rate Insurance – This type of policy provides protection against the risk of interest rate fluctuations on debt obligations.
- Excess Liability Insurance – This type of policy provides coverage over and above the standard liability limits on a standard policy.
- Excess Property Insurance – This type of policy provides coverage over and above the standard property limits on a standard policy.
- Excess Vehicle Insurance – This type of policy provides coverage over and above the standard vehicle limits on a standard policy.
Surplus line policies have fewer if any, restrictions than standard carrier policies and they are often more flexible with their insureds, which means they can tailor the coverage to the individual client’s needs. Most standard carriers will not issue a policy for risks above their minimum limits or for those that don’t meet certain requirements. They also may not offer certain types of coverage like umbrella liability or excess liability (or both) because these policies are considered high risk.
Surplus lines insurers can provide coverage for high-risk risks and for risks that are beyond standard carriers’ minimum limits. This makes them ideal for small businesses that want to cover themselves against large claims but can’t get a policy through a standard carrier due to their lack of experience or poor claims history.
Excess and surplus line policies do not guarantee the same access to funds as standard commercial insurance policies. The excess policyholder pays an additional fee for excess or surplus lines coverage in return for higher limits of coverage than their standard policy would allow. The surplus line insurer takes on more risk than a traditional insurer, so they charge higher premiums than other carriers would charge for similar coverages.
Excess and surplus lines policies can be purchased with multiple layers of coverage that increase costs even further. A multi-layer policy will have two layers of excess coverage, one primary layer and one secondary layer of excess coverage; these two layers can be combined with any number of additional secondary layers of excess coverage. Companies may also choose to purchase additional types of coverage such as medical malpractice or errors and omissions liability insurance along with their commercial lines policies.
Overall, excess and surplus lines are beneficial in a number of ways. Various different types of exclusions that can prevent you from taking out an insurance policy for your business might not apply to this kind of coverage. In the end, excess and surplus lines can only be taken out once you have exhausted all other options elsewhere in the market, so they are not necessarily something that you will want to use by default. However, you may find their usage to be beneficial under certain circumstances.