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Definition of Surplus Lines Insurance

Updated: November 18, 2022

Surplus lines insurance is an often-underrated source of coverage for businesses. Especially those that operate in high-risk industries. 

If you run a company in an industry with a high risk of losses, you need extra liability coverage. This is something you may struggle to get from standard insurance policies. Surplus lines insurance is a type of secondary coverage. It’s available if your business can’t get sufficient primary coverage from regular insurance providers. 

These policies are also known as surplus liability coverage. As they cover the excess amount of risk that other insurers won’t take on. This article explores what surplus lines insurance covers and who needs it. 

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    • Surplus lines insurance is a type of property and casualty insurance. It is typically used to insure against unusual or high-risk exposures.
    • Surplus lines insurance is not subject to the same regulation as standard insurance, and as a result, may be more expensive.
    • Surplus lines insurers are not required to be licensed in all states, so it is important to check that the insurer is licensed in your state.

    What Is Surplus Lines Insurance?

    Surplus lines insurance is a type of alternative coverage. It applies when an insured’s primary insurance company turns down a claim or imposes excessive premium increases. 

    The amount of coverage available depends on the amount of risk the insurer is willing to take on. If a company’s primary insurance coverage is insufficient to handle a loss, surplus lines coverage may be available to fill the gap. 

    Surplus lines are extra policies that are available from a different insurance company than the primary insurer. 

    In effect, these policies expand a business’s coverage options. While these might not be as cheap as primary insurance, they can prove to be a cost-effective way to manage risk and risk retention.

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    Types of Surplus Lines Insurance

    There are many different types of surplus lines policies. Business owners can purchase coverage for a wide range of risks. Including property coverage, liability coverage, and workers’ compensation.

    Property Coverage

    Property coverage protects your business’s property. Including property on the premises, offsite property in transit, and any property held for customers or suppliers. It also covers structural damage to your property and debris removal related to a loss.

    Property coverage is a common type of surplus lines coverage. This coverage protects your business against losses such as fire or theft that would otherwise be covered by the owner’s policy.

    Liability Coverage

    Covers the costs associated with a lawsuit that claims negligence on behalf of an insured person.

    Workers’ Compensation

    Workers’ compensation provides benefits to injured employees and covers payroll taxes. As well as medical expenses, and other costs related to workers’ compensation.

    Surplus Lines Insurance vs. Normal Insurance

    Surplus lines policies are not meant to be a replacement for a primary policy. They are a source of coverage in the event that a business cannot obtain the necessary coverage to meet its risk. 

    This is primarily due to the high rate of risk associated with the type of work a business does. People who work in high-risk industries, such as healthcare, are often unable to get insurance from regular providers due to the high risk of loss. 

    There are also times when a covered business has an increase in the amount of additional risk it carries. And the primary insurer can deny coverage due to the rise in risk. The surplus lines are designed to deal with these issues.

    That said, surplus lines policies are not always available. They may only be offered in special circumstances. Such as when a business’s regular insurer declines coverage or when the industry is so risky that no company will provide insurance.

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    Examples of surplus lines insurance

    If your main health insurance carrier can’t offer coverage in your state, you can buy a “non-admitted” health insurance policy. This can normally be bought from a surplus lines provider. 

    Catastrophes like a hurricane force insurers to cancel their policies. But surplus lines policies can provide coverage to businesses that otherwise would go uncovered.

    Let’s say your workers are required to have workers’ compensation coverage. But your business is unable to find a primary insurance company that will provide coverage. A surplus lines policy may be an option.


    Companies can often face challenges getting insurance through traditional providers. This means that surplus lines can be a good option. However, these policies aren’t cheap, and you should be careful when selecting a provider. 

    Make sure you understand the policy conditions. As well as the payment procedures, and the extent of coverage before purchasing a policy. You need to ensure that you’re getting a fair deal from your surplus line provider. 

    When searching for surplus lines providers, look for companies with a solid financial history. Insurers with lower credit ratings are more likely to go out of business, leaving policyholders with no coverage. 

    If you have questions or concerns about your company’s insurance coverage, talk to your insurance agent. They can help you find the right policy for your business.

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    FAQs About Surplus Lines Insurance

    How is surplus calculated in insurance?

    Assets of a policyholder-owned insurance company less liabilities equal a policyholder surplus.

    What is a loss ratio?

    In the insurance sector, the loss ratio is a term used to describe the proportion of losses to premium revenue. Insurance claims that have been paid and adjustment costs are included in loss ratios.

    What risks do excess and surplus lines insurance cover?

    All dangers that main insurance plans do not cover are covered by surplus lines insurance. This is due to the fact that policies for excess lines are placed with an insurer that is only authorized to provide “reserving” coverage.

    What type of insurance can be obtained through surplus lines insurance?

    A risk that typical or standard insurers are unable or unwilling to insure may be covered by an unadmitted, out-of-state insurer. This is through the surplus lines insurance market sector.


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