The Benefits of Placing Business on a Surplus Lines Basis

by Frank Huver, SVP Rockwood Programs

Rockwood Programs has been a Lloyd’s Coverholder for more than fifteen years and is proud to be an “Early Adopter” of the CHART Exchange. The agency specializes in professional and management liability products. Our preferred target audiences tend to be either unique or under-served niches within the marketplace.

Placing business through London means we write on a non-admitted (or surplus lines) basis. By using this type of “paper”, we are afforded the flexibility to react quickly to the dynamic needs of non-traditional markets. Instituting similar changes on an admitted form – with the requirement of individual state filings and approvals – often proves to be much more of a timeconsuming process.

Here are some other benefits of placing business on a surplus lines basis:

  • Have freedom of form, enabling the administrator to add policy enhancements that are unique to the specific audience a program is designed for.
  • Freedom of rate gives the group the ability to offer debits and credits unique to the specific audience the program is designed for (example: slot rating via premium production vs. state based rates that penalize certain geographic locations)
  • Facilitates the adding of risk management tools unique to the program group.

Rockwood Programs has plenty of experience placing business through the Excess & Surplus (E&S) market. During our tenure, we have encountered a number of misconceptions about the business. Some of the more prevalent false impressions are “debunked” below:

MYTH #1
Non-admitted insurance carriers are unregulated. Every insurance company must receive the approval of the individual state insurance departments before they can write business in that jurisdiction. Admitted carriers are licensed by the states; nonadmitted insurers are “whitelisted”. In order to be included on the “white list”, carriers must meet certain financial and regulatory criteria mandated by each jurisdiction. These requirements usually include the establishment of substantial premium reserves and/or demonstration of adequate reinsurance.

“A state’s Guarantee Fund is established to serve as a “safety net” in the event of carrier insolvency. Rockwood’s primary non-admitted insurance carrier – Lloyds of London – maintains an “A” (Excellent) rating from A.M. Best and an “A+” (Strong) rating from Standard & Poors.”

MYTH #2
Non-admitted insurance is only for “bad” risks. Non-admitted carriers can often provide coverage that their admitted counterparts can’t, through freedom of form and rate. As a result, E&S markets can tailor insurance terms, conditions, and premiums to meet the specific needs of their clients. This feature makes non-admitted coverage ideal for many professional and management liability exposures.

MYTH #3
Business written on a non-admitted basis is not protected by a state’s Insurance Guarantee Fund. This is technically true. With that said, the protections provided through a Guarantee Fund are extremely limited. Funds may not be available to insureds that exceed certain revenue thresholds. Further, the coverage afforded is usually a fraction of the limits provided on the insured’s actual policy.

Remember that a state’s Guarantee Fund is established to serve as a “safety net” in the event of carrier insolvency. Rockwood’s primary non-admitted insurance carrier – Lloyds of London – maintains an “A” (Excellent) rating from A.M. Best and an “A+” (Strong) rating from Standard & Poors. These rankings are a testament to the company’s financial strength.

Myth #4.
Non-admitted carriers are inferior. All insurance companies are not the same. Rockwood’s preferred carrier partner – Lloyds of London – with a pedigree unmatched in the industry. Since their start in 1688, they have grown to become the world’s leading market for specialist insurance. The carrier wrote nearly $15 billion of total premiums within the United States in 2015 alone.

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