Excess and surplus lines insurance is a segment of the insurance market that allows consumers to buy property and casualty insurance through the non-admitted market. When a standard carrier decides not to write a policy, you may be able to find insurance coverage in this segment of the industry. It is also referred to as E&S, specialty lines, surplus insurance, and hard-to-place business.

The E&S industry is comprised primarily of small to mid-size companies writing what is referred to as "main street" business. The small contractor or the owner of an older building in an undesirable part of town is the staple of the business. A few large organizations will write business such as oil refineries, aircraft liability, and property coverage on a communications satellite. However, for the most part, the industry is dominated by smaller companies.

An admitted carrier, or standard carrier, is an insurance company that has received a license from the state department of insurance, giving the company the authority to write specific lines of insurance. These companies are also bound by rate and form mandates and are strictly regulated to protect policyholders from a variety of illegal and unethical practices including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due to their policyholders.

A non-admitted carrier is not licensed by the state but is allowed to do business in that state. Non-admitted carriers are sometimes referred to as unlicensed carriers. However, non-admitted carriers are financially stable companies and are regulated.

Most states require that non-admitted carriers submit financial information, articles of incorporation, list of officers, and company information. They cannot write insurance that is typically available in the admitted market. They are not protected by the state guarantee fund, may pay higher taxes, and may only write a policy if it has been rejected by three different admitted carriers. The agent placing the business must have a surplus lines license. States also maintain a list of approved surplus lines companies, and policies can only be written by companies on this approved list.

Non-admitted carriers are not bound by most of the rate and form regulations imposed on standard market companies. This allows them the flexibility to change the coverage offered and the rate charged without time constraints and financial costs associated with the filing process. This is good for both the company and the policyholder.

Most likely, your policy is written by an E&S carrier because the standard carriers have elected not to cover your insurance needs. The reasons for this vary, but could include the following:

• The risk does not meet the guidelines of the standard market due to age, location, loss history, or cancellation
• The policy limits exceed the guidelines for the standard market
• The risk is "outside the box" of what the standard carriers are comfortable writing
• The risk is an “unusual risk” or "extraordinary" and the standard carriers may not be comfortable covering such a risk; usually these are very large exposures with equally high potential for loss such as aviation liability insurance and protection for a demolition business

When your policy is written by a non-admitted carrier, a disclosure of that is required by law. What it means to the policy holder is that if the carrier were to become insolvent, they are not eligible for recourse through the state guarantee fund. However, studies show that the percentage of non-admitted carriers that become insolvent is lower than the percentage of admitted carriers that suffer the same fate. The key consideration is to do business with those organizations that are financially strong and have the ability to pay claims when a covered loss occurs.

The E&S market is regulated in a different fashion than licensed or admitted companies. While the amount of direct regulation is less, specifically in the forms used and the rates charged, the E&S industry is still watched very closely. They cannot write insurance that is typically available in the admitted market. They are not protected by the state guarantee fund, may pay higher taxes, and may only write a policy if it has been rejected by three different admitted carriers. The agent placing the business must have a surplus lines license. States also maintain a list of approved surplus lines companies, and policies can only be written by companies on the approved list.

Perhaps. Since the forms used by non-admitted carriers are not filed, there can be some significant differences in the coverage provided. Each company may have developed a particular coverage form or endorsement to meet its specific needs. It is ALWAYS a good idea to read your policy carefully, and ask your agent or broker to explain terms and conditions you don't understand.