Simple answer, it is the non-standard or specialty lines section of the insurance business. “Standard carriers” need to file their rates and forms with state insurance departments and have them approved. Surplus lines carriers operate outside that restriction and can tailor their policies to fit the needs of a particular risk. It is this freedom of rate and form that allow these specialty insurance carriers to provide innovated risk solutions or provide coverage to risks that be deemed “uninsurable”.
The surplus lines insurance industry also provides solutions to new and emerging exposures that may be deemed to new or too risky for standard lines carriers. Many new coverages start in the surplus lines arena and eventually work their way to the standard carriers as they become more familiar and comfortable with the coverage and exposures. Some examples of this would be employment practices liability and cyber liability.
Standard carriers are regulated at the state level and pay state premium taxes based on where the premium is written. Surplus lines carriers are exempt from premium taxes and surplus lines brokers collect state surplus lines taxes in order for states to make this revenue back. Surplus lines carriers are exempt from state guaranty funds also. Surplus lines carriers are regulated in their home state and not by all insurance departments.
On behalf of IEC University, Ken Kukral breaks down all things insurance. Stay tuned for more!