What Are Surplus Lines?
Surplus lines are insurance policies that cover anything out of the ordinary. By out of the ordinary, we mean things that the regular standard market of insurance considers to be too “high-risk.” All sorts of things can end up under the surplus line umbrella.
Surplus lines are great because they offer greater flexibility and often come with higher guarantees and coverage. They give you the freedom to innovate while still getting protection. If you can think of it, surplus lines can usually cover it.
What’s the Difference Between the Standard Market and Surplus Market?
In order to best understand the difference between the standard and surplus markets, we’re going to have to dive into Insurance 101.
Standard insurance is also called the licensed or admitted market. Surplus lines are also known as Excess and Surplus (E&S) lines, specialty lines, or non-admitted insurance.
The terms admitted and non-admitted frame how insurance policies are regulated. Admitted or traditional insurance policies are backed and regulated by the state. The state does not regulate non-admitted policies. That doesn’t mean that non-admitted brokers are scammers or unqualified; we’re still licensed insurance agents. We aren’t confined to state regulations, enabling us to help people in unique circumstances.
If you aren’t convinced, we brought some numbers.
The US surplus market is expected to reach $125.9 billion by 2027. Surplus lines have become increasingly popular because of their flexible and non-traditional applications, leading to the market’s exponential growth. The commercial segment dominates the surplus market, but personal policies are also available.
One of the main reasons for the surplus market’s growth trajectory is the COVID-19 pandemic and all of the uncertainty that came with it. In 2020, the US saw a direct premium growth of 17.5%, which was the most significant YOY premium increase since 2013.
People often hesitate to commit to a surplus line because the state is unlikely to help them in case of insolvency and insurer bankruptcy. All insurance comes with risk, and it’s better to be covered in a worst-case scenario than not covered. The best thing you can do is ensure you’re getting your policy from a trusted broker.
The bottom line is that it’s essential to consider your insurance company’s quality and overall ranking, whether you’re going for surplus or standard coverage.
How Is the Surplus Market Regulated in Texas?
Our company is located in Texas, and we consider ourselves Texas surplus line insurance experts.
The Texas Department of Insurance (TDI) governs standard insurance. By definition, the state doesn’t license surplus lines companies. TDI does approve which insurance companies can do business in Texas. (We’re backed by TDI — #1965683.)
What TDI doesn’t do with surplus lines companies:
- Control rates
- Control policy forms
- Perform routine reviews
- Hold them accountable to Texas state insurance laws
What TDI does do with surplus lines companies:
- License and regulate surplus lines agents
- Determine whether surplus lines companies can operate in the state
- Keep a list of eligible surplus companies
- Monitor the financial condition of surplus lines companies
- Oversee the Surplus Lines Stamping Office of Texas (SLTX)
TDI checks surplus lines companies’ financial standing to ensure they have at least $15 million in combined capital and surplus or meet the minimum in their jurisdiction (whichever is higher) to do business in Texas. This demonstrates that TDI-supported companies are less likely to go bankrupt.
SLTX outlines all the rules and regulations for surplus lines brokers. We won’t bore you with the details ourselves, but if you’re so inclined, you can read the rules on their website here.
Why Does It Matter?
Knowing how surplus lines operate matters because it gives you the peace of mind that you are getting trusted, and reliable coverage that fits your unique circumstances. We have rules to follow, but we still have the wiggle room to get you the coverage you need. Before you sign on with a surplus lines broker, check the TDI list to ensure they’re in good standing.
Craig and Leicht for Surplus Lines in Texas
We love working with surplus lines because we love covering things that other insurance agents find impossible. We’ve covered everything from snow cones to petting zoos, and we’re always on the hunt for our next intriguing project.