Understanding the Difference Between a Standard and Excess Surplus Line Insurance

Inherently risk-averse, we do what we can as individuals and business owners to minimize loss or liability from an incident.  Everything from continued training through insurance policies help mitigate risk by either reducing the likelihood of an event or financial recovery after an incident occurs.  But, while policyholders purchase plans to prevent loss, there are different classifications of insurance available depending on your business type or unique situation.

The Standard Marketplace

As an insured party, the standard marketplace is as close to a guaranteed safety net as you can get; if your coverage needs fall within a structured set of guidelines, any claim you make against the policy is backed by a state guarantee fund.  The catch is the guidelines.  In order for an insurance product to be offered it needs to meet two criteria: offered by an “admitted” carrier (authorized to sell state fund-backed policies and charge specified rates), and the purchaser must adhere to specific guidelines, or at least the covered portion of their business must do so.  Any additional coverage the purchaser needs will be considered surplus line.

Surplus Lines Insurance

If you operate in a riskier line of business or need additional coverage not offered within the standard marketplace, agents have the ability to offer a wider range of coverage options in surplus lines.  Surplus line products do not fall under the same strict guidelines and scrutiny, and carriers are not bound to “admitted” regulations.  While this offers greater flexibility as a policy buyer, the concern is what will the product cost, and since it’s not state-backed, how do you have assurance your carrier is financially sound to cover a claim should you file?

Your Insurance Agent’s Role

While insurance carriers must be licensed in and adhere to certain regulations to operate in each state as an “admitted” provider, however when it comes to surplus lines, insurance carriers are less burdened by oversight or in-state licensing in order to offer surplus line policies, therefore rather than the carrier, it’s the state-licensed insurance agent who has a fiduciary responsibility to verify the financial health and track record of the providers they represent.