Homeowners insurance offers vital financial protection for one of your most valuable assets. But what if you’re struggling to find an insurer that will cover your property? Today, an increasing number of traditional insurers are canceling or non-renewing homeowners insurance policies, with many cancellations occurring in high-risk areas, such as parts of California, Florida, and coastal South Carolina.
Fortunately, many homeowners who are shut out of the traditional market can find hope (and coverage) through excess and surplus (E&S) line insurance. Understanding E&S insurance, how it fits into the overall insurance landscape, and the regulations that govern it can help you decide if an E&S insurer is right for you.
What is excess and surplus lines insurance?
E&S insurance is a specialized type of insurance designed to help individuals or businesses secure coverage when an “admitted” insurer, or one licensed and regulated by the state, won’t issue a policy. Typically, this includes homeowners who:
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Live in a high-risk area. For example, homeowners may struggle to obtain standard home insurance due to their increased risk of natural disasters, such as hurricanes or wildfires.
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Have unique coverage needs. Any number of characteristics can put you outside of a standard insurer’s underwriting guidelines. These may include unique building materials, a history of severe losses, or unexplained lapses in coverage.
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Require higher limits. Some insurers limit the amount of coverage they are willing to issue, even for expansive or high-value properties.
What makes E&S insurance different?
E&S insurers face different requirements than admitted insurers. For instance, E&S carriers are not required to file rates and forms with the state’s department of insurance. This gives them more flexibility to underwrite policies for high-risk properties admitted insurers typically won’t cover.
In this sense, having fewer requirements allows E&S insurers to respond more quickly to changing markets, offer customized coverage, and assume risks that other insurers may not. This is a crucial distinction and feature for homeowners in wildfire-prone areas and other disaster-exposed regions.
However, it’s essential to note that E&S insurers are still required to comply with other regulations and requirements as outlined below.
Is E&S insurance safe?
Yes, E&S insurance is a safe and reliable option for homeowners across the nation.
While an E&S insurer may not be “admitted” to a state where it sells coverage, it must still meet strict financial standards — i.e., prove solvency — and any regulations set by the state where it’s licensed.
Additionally, many states establish an entity to oversee E&S surplus line insurance.
For instance, the Florida Surplus Lines Service Office (FSLSO) and the Florida Office of Insurance Regulation (OIR) monitor E&S insurers in the Florida home insurance market. The Surplus Line Association of California monitors E&S insurance carriers in California.
E&S insurance sales are further regulated. The coverage must be placed with the surplus lines insurer through a licensed surplus lines broker. These individuals are responsible for:
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Reporting surplus lines transactions to state insurance regulators
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Ensuring that all transactions comply with the state’s E&S insurance laws
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Submitting premium taxes to the state tax authority
Who needs E&S insurance?
Many homeowners can benefit from E&S insurance, but some are more likely to need it than others. You may need an E&S policy if:
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Your property is located in a high-risk area, such as one prone to natural disasters, including hurricanes, wildfires, floods, or significant crime
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You’ve received a cancellation or non-renewal notice from your current insurer despite making timely premium payments
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Your home is considered high-risk because of its age or non-standard construction
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You’ve had multiple claims within the last few years
E&S insurance policies are becoming increasingly common in certain parts of the country, particularly as admitted insurers cease issuing policies or withdraw from the insurance market in states prone to disasters. E&S policies fill the gap in coverage options, allowing homeowners to protect their property despite volatility in the admitted carrier market.