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Excess & Surplus Lines: Navigating the World of Grey

February 21st, 2017

There is this mysterious segment of insurance that we all know exists, but are hesitant to really understand how to utilize. We have questions like “what exactly is it”, “how is it different from my standard markets”, “how do I access it”, “am I using the right access point”, “who is Lloyd’s and why do I get different rates from them”…? The list is endless, which is why we view excess and surplus lines as the mysterious world of grey, where everything seems to fit somewhere, somehow but we just can’t figure out how or why. For the purposes of this blog, we are going to just dip our toe into the world of grey and get you started navigating through.

The easiest question to answer, but probably the one that most commonly goes through our heads: What exactly is excess and surplus and how is it different from my standard markets? According to the American Association of Managing General Agencies (AAMGA), ‘excess and surplus lines is a segment of the insurance market that allows consumers to buy property and casualty insurance through the state regulated insurance market, where policyholders, agents, brokers and insurance companies all have the ability to design specific insurance coverages and negotiate pricing based on the risks to be secured.’ Excess and Surplus line carriers are not bound by all the same rate and form regulations as standard market companies, allowing them the flexibility to change the coverage offered and the rate charged without time constraints and financial costs associated with the filing process. Sometimes, excess and surplus carriers are referred to as non-admitted or unlicensed carriers; however, they are financially stable companies that are regulated in other ways. They also cannot write insurance that is typically available in the admitted market because they are not protected by the state guarantee fund and may pay higher taxes, so they can only write a policy if it has first been rejected by three different admitted carriers, and only when the agent placing the business has a surplus lines license.
Now, how do you access this coverage after your policy has been rejected by three different admitted carriers? And how do you know you are using the right access point? The Insurance Journal explains; to access the non-admitted market, a retail insurance agency needs to enlist the services of an excess and surplus lines broker or managing general agency (MGA). So how do you find the right MGA or know that the MGA you are currently working with is he right fit for your retail agency? Well you’re going to have to ‘date’ a few to see who would be the best fit for a new relationship and re-evaluate your current MGA/wholesale relationships and there are four key things you must consider when deciding which MGA/wholesaler to partner with; markets, reputation, expertise and stability. You should look at the financial security and general reputation of the carriers that the wholesaler is offering because the quality of the market into which a risk is placed is key and generally, the quality of the represented insurance companies speaks volumes about the reputation and expertise of a wholesaler. Reputation is pretty self-explanatory. It is important to be comfortable with the firm and its staff and trust that they are expected to act in utmost good faith at all times. All communication should be open and honest and you, the agent, should be able to rely on the word of the people you deal with at the wholesaler and believe in the knowledge and expertise of the wholesaler. You should seek out only established wholesale firms and people with specific expertise in the myriad of coverage offered by the surplus lines marketplace. These three things combines are what creates the last key thing you should be looking for in an MGA/wholesale partner which is stability. A wholesaler does not survive by cheating agents or companies. Those wholesalers that have served their partners well over time are usually the ones that are trustworthy and who do business properly.
Now let’s get started courting MGA/wholesalers and find the one that is the best fit for your agency! Don’t forget this is an extension or supplement to your admitted carriers, but not a replacement, as you have to receive three declinations from admitted carriers prior to submitting to an excess and surplus lines carrier. You want to look for an MGA/wholesaler with quality markets that offers an expertise or niche in products/classes that align with your target, a good reputation from providing quality service and response to their other partner carriers and brokers, and ultimately offer a stable outlet for your excess and surplus business. Keeping these important factors in mind when dating your wholesalers will lead you to the right one for your agency.