Understanding Surplus Lines Insurance Policies

Surplus Lines:

• Purchased through a broker
• Require Inspections
• Multi-lines discounts not available
• Rates can change at renewal time

For some reason, you’ve been turned down for insurance.  Where do you go to find a policy?   The answer might be a Surplus Lines insurance company.  This article will provide an overview about this type of company, how they work, and how to get a policy.

Admitted Markets
Most insurance policies are sold by “admitted” insurance companies. These are the name brand companies that advertise their services.  Admitted insurers file their rates and specific requirements with the CA Department of Insurance (CDI).  In order for an admitted insurance company to change its rates, it most receive authorization from the CDI.  Rate increases tend to be less than 7% due to Prop 103 regulations.  Admitted insurance companies also participate in the State Guarantee fund in case of default.

Surplus Lines Markets
Surplus lines or “non-admitted” insurance carriers are regulated by the CA Surplus Lines offices, but regulation is far less invasive than for the admitted markets.  Rates increases are based on claims experience, and since these companies provide insurance in high risk areas, you may see large increases after catastrophic events like the CA wildfires.  The most obvious difference between admitted and non-admitted is that purchasers of non-admitted policies do NOT have the protection afforded by the state’s guaranty fund.  For this reason, you’ll want to make sure the company has a strong financial rating.

People get nervous when I tell them they will need insurance from a Surplus Lines company.  In practice, the policy is similar to any other policy.  There’s coverage for your home and personal property, emergency housing and liability.  Your lender will accept the coverage – just like any other policy.  If you have a loss – an adjustor will be assigned to assist you with your claim.

Buying and managing your policy is a bit different when purchasing Surplus Lines.

• You must be turned down by at least 3 “admitted” insurance companies to qualify for a surplus lines policy. You only use these companies when your situation requires it.
• You’ll need an insurance broker; there’s no consumer direct channel, no 800#, no internet.
• There’s only a few companies in this market so “shopping around” may not be an option. Pick a broker you like and work with them to develop an insurance plan that meets your needs.
• CEA – California Earthquake Authority does not partner with these companies. If you want earthquake insurance, you’ll need to buy it from a private earthquake insurance company.
• Because they take higher risk properties, the insurance company requires inspections at new and renewal business. If you are in a remote or gated location, you’ll need to make arrangements for the inspector to see your property.
• There’s no on-line channel to manage your policy. You’ll get your policy documents directly from your broker.
• Payment plans are not offered. Your agent can arrange for policy financing separately from the carrier.
• Multi-line discounts or “bundling” are not offered so the policy will likely cost a bit more.
• You’ll pay fees for inspections, wholesale broker fee and taxes, adding to the overall cost of insurance
• Underwriting guidelines and rates can change at renewal – increases may be large when there are catastrophic losses like weather or wildfires.
• My agency offers policies for difficult to insure properties.  We have relationships with wholesalers who provide us access to Surplus Lines companies.  If you’re having problems finding a policy, we’re happy to assist you.

Follow our four part series about changes in the California homeowners insurance industry

• Why is it so difficult to get Homeowners Insurance in the Oakland/Berkeley Hills?
• What is a “Difference in Conditions” endorsement for a home insurance policy?
• How to insure a “hard to insure” property
• Understanding Surplus Lines Insurance Policies