Generally, a policy is written through the Excess and Surplus Lines company (E&S) because a standard carrier will not write the risk. The reasons for this are many, but usually include:
- The risk does not meet underwriting guidelines of standard carriers, due to claims history, age of the property, location or the risk, or cancellation by another company;
- Your risk is not familiar to the standard underwriters, so they are uncomfortable writing it;
- Your risk is larger than the capability of standard carriers to insure it; or
- Your liabiilty requirements are greater than those acceptable to the admitted market.
In Florida, a standard insurance company, also called an admitted carrier, is one licensed by the state of Florida, bound by rate and form regulations, and strictly regulated to prevent abuse and fraud.
Admitted carriers are bound by law to contribute to the Florida State Guaranty Fund, which is used to pay losses if an insurance carrier becomes insolvent or otherwise unable to pay its claims. In contrast, an Excess and Surplus Lines (E&S) insurance company is not required to be licensed by the State of Florida. It can, however, conduct business in the state through a wholesale broker or managing general agent. Surplus lines insurers may be subject to greater capitalization requirements than standard insurance companies.
Excess and Surplus Lines carriers are also referred to as non-admitted or unlicensed carriers. They are usually domiciled in another state, but allowed to operate in different states. While they are not regulated by the Florida Department of Insurance and are given more flexibility within the free market system, they are regulated in other ways. For instance, they must submit financial background statements, articles of incorporation, a list of officers, and other pertinent information. Surplus lines carriers may pay higher taxes to the state.
E&S carriers cannot write business that can be written by standard, admitted carriers. They do not come under the auspices of the Florida State Guaranty Association (FIGA) and may only write a policy if it has been rejected by three admitted carriers. The State keeps a list of registered E&S companies, and policies can only be written by carriers on this list.
Because Excess and Surplus Lines carriers are not regulated in the same way as the standard carriers, they have much more flexibility to tailor coverage, charge the appropriate rate regardless of the State filing, and modify the policy form to make the risk more acceptable. They can add additional exclusions or other conditions that might put restrictions or demands on the insured. This is good for the consumer as well as for the company. It allows the carrier to accept risks that standard insurers refuse.