Denials–hard markets mean agents and brokers will be seeing more of these, as well as non-renewals. This is why it’s so important for your clients to seek renewals and quotes on new policies with plenty of time to spare, … time you may need to work with an underwriter to secure a quote from the excess/surplus market.
The non-admitted market typically covers commercial risks, making up almost 14% of commercial policies. Between a hard market and many new/emerging businesses such as those dealing with cannabis, renewable energy, and artificial intelligence, agents will need excess carriers now more than ever.
First, what’s the difference between admitted and non-admitted carriers?
Surplus lines carriers aren’t licensed by individual states. Admitted carriers are licensed and monitored by state insurance regulators, and if one of those carriers doesn’t have all the funds to pay out losses to insureds, it can pull from the state guarantee fund. A non-admitted surplus lines carrier can’t pull from that fund since it’s not regulated by the state.
However, less regulation also means it has the freedom to adapt to new market conditions and provide special or out-of-the-ordinary coverage. This is important since the market can fluctuate quickly, especially when new technology emerges. Since surplus carriers aren’t subject to a particular state’s regulation forms as well, they have the ability to make modifications on policy forms in order to make a risk “acceptable.” They also have the ability to adjust rates accordingly.
When do you approach a surplus carrier?
A surplus carrier might be needed if the insured is a new company without an established history, has many previous claims in their history, or deals in a new or unknown type of business. All of these traits make an insured more “risky.” States have different guidelines for when to approach a surplus carrier. For example, in Florida, you may approach a non-admitted carrier after 3 or more standard markets have declined to quote a risk. You also have to document these declinations by logging the date of the communication, name of the underwriter and their contact info, name of the admitted carrier, and the reason for the decline. You will have to provide that information to the surplus carrier.
Which Clients/Risks Are Likely to Need Excess/Surplus Coverage?
Depending on their history, anyone could require excess/surplus coverage. However, these situations are the most typical:
- High risk businesses, such as explosive manufacturing, firearms makers, or hazardous haulers
- Those outside of standard market underwriting, such as bars and taverns with dance floors, vacant properties, or taxi cabs
- Those needing higher limits than what’s offered by standard markets, such as $10,000,000 + liability umbrellas or $5,000,000 + property limits
- Applicants needing specialty coverage, such as special events, concerts, and unique situations
- Applicants with a history of excessive/unacceptable losses
What You Should Look for in Surplus Lines
Because surplus carriers exist without state regulation, you want to find carriers who are financially strong. Look for an underwriting team with multiple markets and that works with carriers having ratings of at least A-. For example, MJ Kelly only works with carriers carrying A.M. Best A ratings. You can look up A.M. Best rating for any carrier here.
Also, look for a reliable underwriter with whom you can develop a good relationship. Insurance is a relationship business, and agents who build a good relationship with someone they’ll use as a primary underwriter/broker will help them better understand what’s needed to get an account to market. The more loyalty the agent gives to their underwriter, the more loyal the underwriter/broker will be to that agent with their time and effort. In addition, the more an agent talks with their underwriter giving them the bigger picture of an account, the better they can strategize how best to approach markets for the ideal coverage. Underwriters work with carriers in much the same way, and getting to know your underwriter will help you to understand what kinds of relationships they have with their carriers.
MJ Kelly’s underwriters have solid relationships with many A-rated surplus lines carriers who can handle special risks and provide customized coverage solutions. Check out our coverages or contact us for a quote.