Key takeaways
- Surplus lines insurance can provide coverage for homes that are uninsurable in the standard market.
- E&S insurance must be purchased through a licensed surplus lines broker.
- Since surplus lines insurance is not state-regulated, homeowners should pay special attention to the terms and conditions of their policy.
- Rates for surplus insurance are typically much higher than traditional policies due to less regulation, increased exposure to loss and smaller risk pool.
Every home has its quirks, but where homeowners see charm, insurance companies can see risk. When a home is deemed too risky for the traditional insurance market, excess and surplus lines insurance can be a safety net for many homeowners who can’t find coverage elsewhere. However, since surplus insurance companies aren’t as regulated as traditional carriers, homeowners switching to surplus insurance should know how their coverage or deductibles may differ from what they are used to.
What is excess and surplus lines insurance?
Excess and surplus lines insurance, also known as E&S insurance or surplus insurance, is insurance for non-standard or high-risk properties that fall outside of standard carriers’ risk tolerance. Surplus lines coverage goes beyond just physical property and can cover unique risks for individuals or businesses. If you remember hearing about Keith Richards insuring his hands or Bruce Springsteen insuring his voice, these are examples of surplus lines policies. Many of these policies are underwritten by Lloyds of London, the largest surplus lines insurer in the U.S.
When would I need excess and surplus lines insurance?
While bizarre celebrity insurance headlines are catching, for most of us, the most significant asset we have to protect is our home.
You may need to purchase a surplus lines policy if you can’t find a standard carrier willing to write a policy for your home. This can happen for several reasons, but the most common is due to the high risk associated with extreme weather loss. “When loss experience worsens in certain areas, insurers may withdraw from that marketplace or increase their rates,” says former surplus lines agent Bill Wilson. “In either case, homeowners may seek coverage from excess and surplus markets.”
States that are particularly vulnerable to losses from wildfire, flooding, high-winds and severe storms have seen traditional carriers limit or withdraw coverage, which has increased the presence of E&S policies. Many homeowners in California have separate wildfire insurance policies due to carriers no longer covering this particular peril in certain high-risk areas. Homeowners in coastal states like Texas and Louisiana may have to purchase additional windstorm insurance if wind is excluded from their home insurance. Surplus insurance may be available as standalone policies with standard coverage types or as additional policies to supplement exclusions from a primary policy.
States with the highest direct premiums written by Surplus lines policies as of 2023
It’s not just extreme weather that can make homes high-risk. Other factors can also put homeowners in the position of being “too risky” for the standard marketplace:
- Previous claims history: Homes or homeowners with extensive or repeat claims can be a red flag for traditional carriers.
- Historical homes: Older homes can have construction that is complex and expensive to duplicate or doesn’t meet current building standards.
- Unique or high-value construction: High-end details like infinity pools or custom fixtures can price some homes outside of what traditional carriers are willing to cover.
- Vacant, seasonal or rental properties: Homes that are unattended for long periods or aren’t occupied by the owner have a higher risk of loss and may not be insurable by many standard insurers.
How is E&S insurance different from standard insurance?
Surplus lines policies play a crucial role in the insurance marketplace. However, these policies are usually a last resort for homeowners who are unable to secure coverage in the standard market. If you are considering an E&S carrier, there are some downsides that homeowners should be aware of.
Be aware, especially if such a move is motivated by price, that you may be moving to coverage less generous than what you’re used to and possibly to a company that is not protected by your state’s guaranty fund. Your best bet is to use an agent familiar with these markets and the pluses and minuses of their products and services.
— Bill Wilson, CPCU, ARM, AIM, AAM
Most states require E&S brokers to provide policyholders with a disclosure form outlining the primary disadvantages a surplus policy can have over a traditional policy:
- Surplus lines policies are not approved by the state regulator.
- Terms and conditions may deviate from traditional policies.
- State guaranty funds are not available to E&S policyholders if their carrier becomes insolvent.
Admitted versus non-admitted carriers
The differences between traditional insurance companies and surplus lines insurance companies stem from the abundance of regulatory control on admitted carriers and lack of regulation for non-admitted carriers.
Admitted carriers are licensed in the state in which they operate and must comply with state regulations. Among several other regulations, the state’s department of insurance (DOI) requires admitted carriers to submit for rate and form filing approval. This allows for form standardization among carriers and can prevent carriers from raising rates unnecessarily. Admitted carriers must also contribute to the state’s guaranty fund — a safety net that can pay for claims if an insurance company goes insolvent (out of business).
Non-admitted carriers are not licensed to sell policies directly to consumers. Instead, policies are typically sold through surplus lines brokers who are authorized by the state to access the non-admitted market. While surplus lines are less regulated than traditional carriers, each state’s DOI maintains an eligible list of approved non-admitted insurers. E&S insurers are not required to submit for rate and form filing approval, which gives these carriers the freedom to customize policy coverage and change rates.
Traditional carriers also have certain policy conditions, like non-renewals and cancelations, that must meet each state’s strict notification deadlines. While surplus lines carriers are not state-regulated, the surplus lines brokers are and follow a looser set of guidelines. For example, in New York, home insurance companies are required to give policyholders 45 to 65 days’ notice before non-renewing a policy. However, surplus lines carriers are only required to offer five days’ notice to non-renew a New York fire policy.
Because surplus and excess lines insurers aren’t regulated the same way as traditional carriers, they have more flexibility in terms of what they cover. Take a home with an older roof: a traditional insurer could see it as too big of a risk and not write you a policy. However, a surplus and excess lines insurer may agree to insure the rest of your home, but not the roof. An admitted carrier would likely be required to insure your whole home.
— Natalie Todoroff
Bankrate insurance expert
Traditional versus E&S insurance
| Feature | Traditional (admitted) carrier | E&S (non-admitted) carrier |
| Regulation | Licensed and regulated by state insurance departments | Not licensed, but can operate under each state’s surplus lines rules |
| Rate and form approval | Rates and policy forms must be approved by the state | Creates custom policy forms and rates do not need state approval |
| Guaranty fund protection | Policyholders can have their claims paid (up to a certain amount) if their carrier goes insolvent | Policyholders are not eligible for guaranty fund protection |
| Claims and conduct oversight | Subject to audits and consumer protections | Less oversight on claims and cancelation practices |
| Policy customization | Standardized forms offer less flexibility | Customizable coverage for unique risks |
| Financial strength requirement | Approved by state regulators | Not reviewed by the state, but must meet surplus lines rules |
| Best for | Homes with common risks | Unique, high-value or high-risk homes |
How to purchase excess and surplus lines insurance
The search for the best home insurance company starts with a licensed agent. To qualify for a surplus lines policy, your agent must make a good faith effort to place your home with traditional carriers. Depending on the state, your agent will need to receive declines from a certain number of carriers before connecting you to a surplus lines broker. Once a surplus lines carrier is found, homeowners are typically required to pay the premium in full to initiate the policy.
Frequently asked questions
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