Why Are Surplus Lines Insurance Polices More Common?

In the dynamic landscape of the financial services industry, one notable area of significant growth is within the insurance sector, particularly in the subset of surplus lines or excess and surplus lines. If you find yourself unfamiliar with this niche, surplus lines insurance involves policies that are either not offered by many carriers or are non-filed with regulators. This could be due to the novelty of the insurance line or its lack of a substantial market presence.

Unpacking the Growth: A Record-Breaking Surge

The surge in the surplus lines insurance segment has been nothing short of remarkable. In the previous year, direct premiums written experienced a staggering 25 percent growth, reaching a record $82 billion. This exceptional gain is attributed to improved underwriting practices within the surplus lines sector.

The Driving Forces: Cyber and Environmental Liabilities

So, what’s propelling this unprecedented growth? According to industry insights, the primary driving forces behind this surge are cyber and environmental liabilities. These two areas pose significant risks with the potential for substantial losses. While they are relatively new risks in the business landscape, they have quickly become major concerns for companies.

Consider the realm of cyber risks — even if your company is not a tech-centric entity, the mere presence of computer systems, customer databases, and online operations can expose you to cyber threats. Similarly, environmental risks have gained prominence in the wake of increased awareness about climate change and environmental advocacy. Companies engaging in manufacturing, sales, and distribution activities may inadvertently create exposures, making them susceptible to environmental liabilities.

Shifting Perspectives: Risk Evaluation and Comfort

Over the years, surplus lines insurers have meticulously reviewed their portfolios and gained confidence in managing these evolving risks. This has led to an increase in retention within the segment, contributing to overall premium growth. As a result, businesses now have greater access to markets and potentially more reasonable premiums.

The Strategic Approach: Working with Experts

Navigating the complexities of surplus lines insurance requires a strategic approach. Collaborate with knowledgeable brokers, agents, or insurers who specialize in this niche. They can provide insights into how these unique coverages might complement your overall risk management strategy.

It’s important to note that, over time, some policies in this category may transition from being excess and surplus lines to filed policies with admitted carriers. Having a solid claims history and loss run can position your company favorably, potentially facilitating the conversion to standard lines in the future.

In conclusion, the growth in surplus lines insurance, fueled by cyber and environmental liabilities, underscores the evolving nature of risks in today’s business landscape. By staying informed and working closely with insurance professionals, businesses can fortify their defenses against emerging threats and ensure they are adequately protected in this ever-changing environment.

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