How E&S Placement Works: A Guide for Retail Agents

Sooner or later, every commercial lines producer gets a risk that standard markets will not write. The operation may be unusual, the loss history may be rough, the limits may be higher than admitted insurers will offer, or the class may simply be out of appetite. That is where the excess and surplus lines (E&S) market comes in.

This guide explains the difference between admitted and non-admitted insurance, what a wholesale broker does, and how a typical surplus lines placement moves from submission to policy. It is general information, not legal advice, and state rules vary.

An admitted insurer is licensed by the state insurance department in the insured's home state. Admitted insurers generally file their rates and forms with the state and participate in the state's insurance guarantee fund, which can pay certain covered claims, subject to limits and exclusions, if an admitted insurer becomes insolvent.

A non-admitted or surplus lines insurer is not licensed in that state but is permitted to write coverage there through a properly licensed surplus lines broker, when state rules are met. Surplus lines insurers have more freedom of rate and form, which lets them write risks admitted markets will not. In exchange:

• •They are not subject to the same state solvency regulation as admitted insurers.
• •They do not participate in state insurance guarantee funds, including the California Insurance Guarantee Association. If a surplus lines insurer becomes insolvent, the guarantee fund will not pay its claims.
• •Policies are subject to surplus lines taxes and, in many states, stamping fees and filings.

Your client should understand these differences, and states typically require a written disclosure.

Most surplus lines insurers do not deal directly with retail agents. Instead, they work through wholesale brokers and managing general agents. A wholesale broker like Sterling sits between your agency and those markets:

1. 1.You, the retail agent, keep the client relationship and gather the information.
2. 2.The wholesaler reviews the submission, identifies markets that may be a fit, and presents the risk to them.
3. 3.Insurers respond with quotes, declinations or questions.
4. 4.The wholesaler brings the options back to you to review with your client.

The wholesaler does not replace the retail agent. You stay the client's advisor. The wholesaler adds access to markets and help with surplus lines paperwork.

1. Admitted market search. Many states require that the risk first be shown to admitted insurers, or that a diligent search be documented, before it can be placed in the surplus lines market. Requirements and exemptions vary by state and line.

2. Submission to the wholesaler. Send a complete package: applications, loss runs, current coverage information, exposure details and a risk narrative. See our E&S submission checklist.

3. Marketing. The wholesaler approaches insurers that may consider the class and risk.

4. Quote review. Quotes itemize premium, insurer fees, any broker fee and applicable surplus lines taxes and fees. Review the terms carefully. Surplus lines forms vary, and exclusions or minimum earned premium provisions are common.

5. Client decision and disclosures. Your client reviews the quote, the required surplus lines disclosures and any broker fee disclosure before choosing to proceed.

6. Binding request. You request binding with the required signed documents and payment arrangements. Coverage is not in force until binding is confirmed in writing.

7. Policy issuance and filing. The policy is issued, and the surplus lines filing and tax steps are completed as state law requires.