A huge area of growth in the financial services industries is within the insurance industry in the subset of surplus lines excess and surplus lines. And this is an area of insurance if you’re unfamiliar with it, which are policies that are either not admitted carriers or non-filed with the regulator because it’s either a new line of business or one that doesn’t have a very substantial market. So if it’s a niche market for insurance or if it’s a new type of risk that’s not really fully developed a surplus lines carrier or an excess insurer will create a market, but because of the fact that it’s maybe hybrid or fluctuating, they won’t have a filed policies or an admitted carrier in that marketplace.
The premium increase set records last year. Direct premiums were written grew by 25%. Think about that in a large industry of something growing 25% to record 82 billion called an exceptional gain because of better underwriting in surplus lines. Well, where’s all this coming from? Well, let’s take a look. According to the article what’s behind the growth is. Mostly cyber and environmental liabilities. Think about it. Those are two areas that have very high potential losses and very high risks, but they’re also relatively new risks. For companies, if you’re a mid-sized company, you might suddenly realize that your biggest exposure is not that your building’s going to burn down God forbid, or you have some type of damage or loss from physical damage. It’s cyber or environmental.
Many of the activities that your company is involved in within manufacturing, sales, and distribution, have actions that create environmental risk, certainly, cyber even if you’re not a tech company, you have computer manufacturing you have customer lists, you have all kinds of online presence which can create cyber risks. These are now massively accelerating. The amount and percentage of exposure that a company has, and especially environmental in the more heightened awareness of climate change in environmental advocacy. You’re going to find that type of risk could create more losses for a company if you inadvertently create an exposure to the public. Fortunately, the fact that this has built up for several years, surplus lines insurers have reviewed their books of business and they’re feeling comfortable with the risks. The segment is increasing its retention, which factors in premium growth. So what you’ll find as a company is that you’ll be able to get access to more markets and maybe more reasonable premiums. But what you’re gonna find is the premium percentage for these lines may actually start to eclipse the other lines because some of the other losses and risk factors may be less of a percentage of the total risk that your company is exposed to.
So work with a good broker work with a good agent or you’re insurer to find out how these types of coverages might factor into your line of defense. The other thing is at some point some of these policies may not be excess and surplus lines anymore. They may become filed policies with admitted carriers. But the fact that you have a claims history might make it easier to get converted to a standard line at some point in the future because you have a loss run or claims history that you can demonstrate not just being a new client.