A Firm Foundation: How Insurance Supports the Economy

The surplus lines market, a group of highly specialized insurers that includes Lloyd’s of London, exists to assume risks that licensed companies decline to insure or will only insure at a very high price, with many exclusions or with a very high deductible. To be eligible to seek coverage in the surplus lines market, a diligent effort must have been made to place insurance with an admitted company, usually defined by a certain number of declinations, or rejections, by licensed insurers, typically three to five. Many states provide an export list of risks that can be insured in the surplus lines market. This obviates the diligent search requirement.

The terms applied to the surplus lines market—nonadmitted, unlicensed and unauthorized—do not mean that surplus lines companies are barred from selling insurance in a state or are unregulated. They are just less regulated. Each state has surplus lines regulations, and each surplus lines company is overseen for solvency by its home state. More than half of the states maintain a list of eligible surplus lines companies and some a list of those that are not eligible to do business in that state.

Lloyd’s of London is a significant writer of surplus lines insurance, both for corporations and individuals. Lloyd’s members conduct their insurance business in syndicates, each of which is run by a managing agent. According to A.M. Best, in 2017 the Lloyd’s market represented 23 percent of the total surplus lines market share and wrote $10.3 billion in surplus lines premiums. The largest surplus lines for Lloyd’s are commercial property, general liability, cyber and professional indemnity.