Surplus Lines Insurance: What It Is and When Your Business Needs It

Surplus lines insurance is a type of policy you purchase through a non-admitted insurance carrier, someone who does not have authority to do business in your home state, because no admitted carrier will write your particular exposure. This product means companies with difficult to insure risks (new ventures, poor claim histories, high-hazard operations, etc.) can still buy coverage instead of going uninsured. However, there are two important considerations: the excess lines policy is NOT covered by the State Guaranty Fund, and its rates and forms are not state-approved.

Most buyers hear "surplus lines" and assume they did something wrong. They almost never did. It usually means the standard market changed its appetite, not that your business is a bad risk. Surplus lines is the normal home for hard-to-place coverage, not a penalty box.

What is surplus lines insurance?

Surplus lines insurance is placed with a non-admitted carrier, meaning an insurer not licensed in your state. Admitted carriers are insurers who have been granted a license to operate in a particular state. However, every state has both an "admitted" and "surplus lines" (or "non-admitted") market for insurance. Admitted carriers have to file their premium rates and policy forms with the state insurance department, and, as part of the state's regulatory process, there is a state guaranty fund to protect policyholders if the admitted insurer fails. The surplus lines market is where a risk goes when the admitted carriers say no, and Lloyd's of London is the best known non-admitted carrier writing American business in this manner.

Freedom is the key. A Surplus Lines Insurer doesn't have to file its rates and forms with the state so that they can price a roofers policy based on two losses or word coverage of an unexpected risk that no one ever thought would happen when writing the Standard Forms. You can't go straight to the Excess & Surplus Market. There are surplus lines brokers which allow you access to this market. Our admitted vs non-admitted carriers Guide compares the two markets. Excess & Surplus Markets are also known as E&S or Surplus Lines and cover the exact same type of coverage regardless of what name the carrier uses.

Why was my business placed in surplus lines?

Your business was placed in surplus lines because your broker could not locate a licensed (admitted) insurance provider that would write you on acceptable terms. This is not uncommon. Your specific type of business may be one that admitted carriers are hesitant to offer coverage for (i.e., demolition or nightclubs). It is possible that your claim history may exceed a threshold set by a carrier, so it pays to look over your current loss runs before renewing. You may be a newly formed entity with no prior track record. Alternatively, your property may sit in a high-risk wildfire area or coastal area where many admitted carriers have pulled back from offering coverage. The lack of appetite among admitted carriers for these types of risks has driven the California FAIR Plan past 684,000 policies in-force as of March 2026.^[1]

The shift of business from admitted insurance companies to excess and surplus (E&S) insurers is often temporary. During times of difficult market conditions, admitted carriers tend to become even more conservative with underwriting, forcing many ordinary businesses into E&S, and then taking them back as the market improves. The market keeps growing regardless. As stated by the Wholesale & Specialty Insurance Association, premium written through surplus lines stamping offices reached $72.7 billion for 2023, an increase of 14.6 percent over the prior year.^[2] In the meantime, what matters is that your broker explains what has changed in the policy wording, since a surplus lines form does not have to match the one you had before.

What are examples of surplus lines insurance?

The E&S market is easiest to understand through who buys there. These are the classes brokers export most often, along with the reason the admitted market declines each:

How does a surplus lines placement work?

A surplus lines placement is required to follow a specific sequence which cannot be skipped by your broker out of mere convenience. The first step is the diligent search: your broker submits your risk to licensed insurers who write the type of risk you have, and state law requires evidence that they declined. For example, in California three declinations documented on the SL-2 form are considered acceptable proof under the Surplus Line Association of California's guidelines.^[4] There are some types of coverage that do not require this process since states publish export lists of such risks that state insurance regulators have previously determined that admitted markets will not write.

The submission will go to a wholesaler. A retail broker rarely has a direct account with an E&S carrier. Therefore, a wholesale broker, or a managing general agent (MGA), who has those relationships, will place the risk and take their own commission or fee. Then the broker files the placement and sends the state premium tax and stamping fee. As of July 2011, when the federal Nonadmitted and Reinsurance Reform Act took effect, only your home state's tax and licensure rules apply to the placement regardless of how many different states you are located in.

Is surplus lines insurance more expensive?

Usually yes, however not because anyone is padding the bill. The premium reflects a risk the standard market refused, priced without a state-filed rate to anchor it. Each placement also includes state charges. In California those include a 3.0 percent surplus lines premium tax plus a 0.18 percent stamping fee payable to the Surplus Line Association of California (the current rate has been in place since January 1, 2023).^[5] These will be an additional $636 on a $20,000 premium. Other states set their own rates which are included in our surplus lines tax rates by state table.

Compare all-in numbers, never just bare premiums. An admitted quote includes taxes in the filed rate, whereas a surplus lines (E&S) quote has them added separately, so until those surplus lines charges are incorporated into your quote they will not be comparable. Your quote should list premium, any wholesaler fee, and each state charge on its own line.

What are the risks of a surplus lines policy?

The Structural Risk is the Lack of a Safety Net. An admitted insurer pays into a State Guaranty Fund which will cover losses up to the statutory limit for claims against it if it becomes insolvent. Surplus lines (E&S) insurers do not contribute to these funds. Therefore, if your E&S carrier fails during a claim, there is no State fund available to assist. This is exactly why Financial Strength Ratings are of paramount importance within the E&S marketplace. Also, an informed E&S broker holds the placement to a strong AM Best rating and advises you on the rating prior to binding.

The second risk is contained within the actual policy wording. Because these forms are not filed with the state, E&S carriers often create their own manuscript forms to fill out (the carrier drafts its own wording) as opposed to using the standard ISO wording everyone knows. Check to see if there have been any additional exclusions placed into the policy, whether the defense costs will be paid from your limit, and whether any definitions have narrowed. The third risk occurs when you prematurely terminate the policy. E&S policies commonly carry a 25 percent minimum earned premium, which means that no matter how quickly you cancel during the year, the carrier will retain at least one-quarter of the total annual premium. Before you bind an E&S policy, ask about each term. Do not wait until after you have bound the policy.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

The Bottom Line

A surplus line is insurance offered by a carrier which is unlicensed to sell within the insured's state. The reason to go this route would be if other licensed insurers refused your risk. Landing there is normal for a hard-to-place class, not a black mark. Once you have selected a new carrier, ensure that your agent/broker has provided you with three important pieces of information prior to issuing you a new binder: the All-In Quote showing premium plus taxes and fees, the AM Best rating of the new carrier, and a clear comparison of the Exclusions contained in the new Policy Form compared to those found in your previous Policy.