Beyond the traditional home, auto or life insurance needs, there are risks that require “special” insurance: flood insurance being one of the better-known needs. But who covers those risks that are even more nontraditional? Or further, risks that have only become realities in the past few years? The answer: surplus lines.
Surplus lines are there when other, more traditional carriers do not have the ability or specialized expertise to cover a risk. These carriers are required to be on their toes. With innovation comes risks that didn’t exist before. And surplus lines are tasked with keeping up with our changing world.
Due to the benefit of flexibility which the traditional market does not have, the surplus lines industry is able to adapt quickly to expand coverage. They step in to fill holes and complement the overall insurance marketplace, becoming pioneers in types of coverages.
One of the specific, emerging and changing industries covered by surplus lines includes cybersecurity. Increased cyber exposure is expected to have one of the biggest impacts on insurance in the United States, according to the most recent Wholesale and Specialty Insurance Association Heat Map. Cyber liability insurance is not just for companies with data at risk — more frequent scams targeting businesses of all sizes include social engineering and cyber extortion.
Recent years have brought about new realities: a world where autonomous vehicles exist. A world with blockchain, bitcoin, drones, 3D and 4D printing, social networking, nanotechnology … Each impacts businesses and their exposure to risks.
Surplus lines are also tasked with keeping up as the world experiences more frequent wildfires and floods. In Florida, the excess and surplus lines market has been an immensely positive force in providing options, especially on risks that require larger limits than the basic National Flood Insurance Program offering.
In addition to new risks, surplus lines are able to be a piece of the insurance market puzzle when the admitted market is experiencing challenges. We’re team players that can pick up the slack until the admitted market is restored to health. Think of it as the tide; the sand and the ocean always meet, just sometimes at different points based on the weather.
The surplus lines industry is able to do that because it’s regulated differently than the standard market, and that is because it serves a markedly different purpose — insuring what the standard market cannot, or will not. It also serves to assist risks the residual market is unable to take.
Surplus lines insurers have several sections of Florida law that govern their behavior and regulatory compliance, including perhaps most notably, the same laws applicable to the standard insurance market regarding fair dealing and trade practices. Surplus lines agents are also independent insurance professionals regulated in the exact same way retail insurance agents are regulated. Moreover, according to data from the Department of Financial Services, the surplus lines market also has a lower volume of complaints than the admitted market.
In our rapidly changing world, surplus lines are evolving to protect homes and businesses. Our members are here to deliver solutions within Florida’s insurance market. We will support good public policy that ensures the well-being of the entire marketplace, including that of our admitted market partners.
And we will do our best to be an effective safety net.
Michael Franzese, CPCU, CIC, CRM, ASLI, CPA, works at R-T Specialty in Tampa and serves as president for the Florida Surplus Lines Association (FSLA).