12 Sep E&S – Friend or Foe?
There is no doubt that the Excess and Surplus Lines marketplace is a friend to virtually every insurance agency. Without effective use of the E&S market, most agencies (if not all) would admit they would not have been able to achieve the success in the industry that they have.
However (and this a big However), it is absolutely critical that there is a solid acknowledgment that the E&S marketplace and industry are unique and must be treated as such.
Among the various issues is the realization there is a pretty good chance that the coverages requested are probably not equal to the coverages being proposed. For example, you send an app to a couple of the agency’s favorite wholesalers. The application clearly denotes what coverages and limits you want a quote on. Let’s assume that you are looking for the E&S market to replace coverage previously written in the admitted market because the admitted carrier is withdrawing from that type of business or possibly withdrawing from the state. Thus, the coverages you indicate in the app to the E&S market essentially mirrors the coverage being replaced. You receive the E&S proposal. Is your work done? Not by a long shot!
Every agency should have a procedure (including who is to perform that procedure) that requires the coverage requested with the coverage provided by the E&S market. Don’t presume that the E&S wholesaler will advise the difference in coverage. That is not the wholesaler’s role – it is your role as the retailer. You may very well be shocked as to the differences not only in coverages but also in limits.
In addition, there is the distinct possibility that the E&S market has added some limitations or exclusions (or both). Many agencies will tell you that “a GL policy in the standard market is not the same as a GL policy in the surplus lines market.” For this reason, you want to secure specimen forms to review what is and is not being covered. Including these specimen forms with the proposal is advised to enable the client/prospect to review the forms themselves. At times, you may wonder, with all the exclusions and limitations, what exactly is there coverage for? I have heard the expression about the E&S market – “they charge three times the premiums for 10% of the coverage.” Is that an exaggeration? Maybe not.
The E&S proposal will also include any subjectivities, so these must be noted and the client advised. If coverage is based on the completion of the various subjectivities, I have heard of situations where claims were denied by the carrier because of some subjectivities that were not completed.
So, is the E&S market your friend? Yes, but it is a friend that has a tremendous degree of uniqueness. Understanding and accounting for the uniqueness is key. Without that understanding, the E&S market can quickly become your foe.