Beyond Standard Policies: Harnessing Coverage Flexibility With E&S Insurance

excess and surplus insurance

Insurance is essential for businesses, as it decreases the amount of risk they take on. Without it, companies must pay out of pocket for unexpected crises, which can eat into profits. Of course, standard policies don’t work for every enterprise, especially those in niche industries. Fortunately, excess and surplus insurance can provide flexible coverage, making it an excellent choice for brokers looking to expand their offerings.

What Is Excess and Surplus Insurance?

Some industries and markets are too high-risk for insurance carriers to cover with a standard policy. Doing so would put an unfair burden on other customers and may even violate regulations limiting the amount of risk a carrier can assume. However, high-risk businesses still offer valuable goods and need coverage to stay viable.

E&S insurance fills this gap by insuring high-risk commercial clients. It can do so because the regulations aren’t as strict, allowing insurance carriers to accept otherwise uninsurable customers.

States regulate standard insurance policies two-fold, creating laws for both insurance companies and policies sold within their borders. That means an out-of-state insurance carrier must adhere to two sets of rules. However, excess and surplus insurance only needs to follow the home state’s regulations. As long as brokers have the proper licensing in the state of sale, they can sell this type of insurance.

What Happens When Standard Insurance Falls Short?

No two E&S insurance customers look alike. For example, a manufacturer that handles hazardous chemicals will likely need a surplus line for its liability policy — but so will a concert venue that hosts events for tens of thousands of people. That said, specific industries are more likely to need this type of coverage, such as:

  • Construction and manufacturing companies that require highly specialized equipment
  • Event management companies, theme parks, and other enterprises that regularly host large-scale in-person gatherings
  • Carpenters, welders, tree service professionals, and other contractors who have a higher risk of bodily injury on the job

Some customers may not work in high-risk industries but simply need help getting coverage for expensive properties. Settling for a standard coverage limit can put these companies in jeopardy if they file a claim, as they won’t be able to recoup the entire loss.

Offering excess and surplus insurance allows brokers to tailor policies to customers’ unique needs. For example, a commercial property policy may have a coverage limit of $500,000, but the customer in question is a historic hotel with an antique crystal chandelier worth millions due to its history, design, and original maker. If the hotel burns down, the $500,000 can help it rebuild, but there’s no way to recoup the loss of the priceless chandelier.

Adding E&S insurance can cover the replacement cost of the chandelier. While the hotel may not be able to replace it (especially if the chandelier is one-of-a-kind), it will at least recoup the monetary value.

Because client needs vary, brokers must work closely with customers to identify areas of risk that require E&O insurance. Clients may not realize their risks fall outside the standard policies or know they can still get coverage after getting rejected for one. Brokers can help these customers identify excess and surplus insurance lines for the following:

  • Property
  • General liability
  • Professional liability

Offering E&S insurance also benefits brokers, giving them a broader customer base. Additionally, clients may be less likely to seek other agencies if they can meet all their insurance needs in one place.

How Does E&S Insurance Adapt to Emerging Risks?

Brokers can also help startups find coverage for emerging industries. For example, generative artificial intelligence (AI) is making waves across industries and will likely prove an essential tool in the future. The risks surrounding AI aren’t yet clear, but businesses still need coverage as they incorporate the technology into their process to stay competitive. E&S insurance could work as a stop-gap until there’s enough information to properly calculate risk.

Excess and surplus insurance can also cover established industries outside the ordinary. For instance, farm and ranch insurance has existed for a while, and carriers have the necessary data to underwrite coverage for traditional livestock and crops. However, unusual or new options throw a wrench into standard protocols.

What if someone has an ostrich farm and sells the eggs? What if someone grows rare orchids for garden competitions? Because these scenarios fall outside the norm, companies need tailored policies to protect their assets.

What if a cash crop falls into a legal gray zone? Some states have legalized cannabis, although it remains criminalized at the national level in the United States. When the first legal growers and dispensaries opened their doors, no one knew what to expect from an insurance standpoint; even today, businesses may struggle to find appropriate coverage. However, cannabis is a booming industry with many moving parts, and business owners need policies to protect their stock, locations, and reputations.

Cybersecurity is another area where excess and surplus insurance has bridged a significant gap. Today, companies know that cybersecurity and appropriate insurance coverage are a must, especially if they do substantial business online. For most enterprises, a standard cybersecurity liability policy is enough to cover the following:

  • Business interruption
  • Costs of mitigating a breach
  • Expenses of alerting customers about breaches and providing identity protection services
  • Ransom for systems held hostage

However, businesses that are on the cutting edge of technology and dabble in certain spaces (such as blockchains and cryptocurrency) may be at a greater risk of cyberattacks. While these industries are essential for technological progress, their position as game-changers means the risks they pose to insurance carriers aren’t fully understood. E&S insurance safeguards their capital, allowing them to keep pushing boundaries without investors and customers paying the price.

Where Can You Talk to Experts About Excess and Surplus Insurance?

Customers rely on brokers to provide them with the best policy options. For clients with unique needs, excess and surplus insurance can bridge coverage gaps. Of course, these policies must be with a trusted carrier that provides top-tier service and has plenty of experience with E&S lines. Contact Cochrane & Company to learn more. 

About Cochrane & Company 

For more than six decades, Cochrane & Company has been proudly at the forefront of the insurance industry. Our experience has enabled us to innovate in powerful ways, reimagining the E&S market, and providing technology solutions that make it easy to do business with us. Licensed in all 50 states, we proudly serve clients across the nation, providing personalized and powerful solutions to help you become an even better partner for your clients. Speak to one of our experienced professionals today by calling (855) 967-0069.


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