The Rise of Surplus Lines Insurance

What happens when specialty insurance becomes the only option?

By Brya S. Arcement

Surplus lines, excess lines, non-admitted insurance, etc. There are many names for the same type of insurance. Hey reader, have you ever heard of surplus lines? No? Me either, well, not until like 3 days ago. But once I learned what it was, my mouth was on the floor.

Surplus lines or “non-admitted insurance” is designed to cover what are considered “uncommon and rare” occurrences. Say, for example, you’re visiting an art gallery with your family. You come across a statue that seems priceless. But I assure you, it does have a cost. And that cost is covered by insurance. If the statue were to fall, a surplus lines insurance company might be covering the damage.

For risks that are too rare, niche or new – think expensive art collections, exotic attractions or fancy tech start-ups – standard insurance companies might not be willing to take the risk. That’s where surplus lines insurance comes in.

Because these types of uncommon occurrences are, well, unusual, there should be a specific type of insurance for these reasons. However, shady business practices can exploit good intentions, and, of course, shady companies will twist something intended for decent use into something exploitative. How exploitative? Welp, let’s get into it. 

Insurance with a different set of rules

Surplus lines insurance is a massive, multi-billion dollar industry. Reader, we’re talking OVER $115 billion in premiums collected in 2023 alone. That’s billion with a “B.” Surplus lines insurance isn’t a niche corner of the insurance world; it is a thriving marketplace that most folks have never heard of. Most people know the names Geico, State Farm, and Allstate, but this is a parallel universe of insurance companies with a different set of rules. 

Why do surplus lines companies hide in plain sight? Do you remember the beginning? When I mentioned that surplus lines had more names than necessary? Surplus lines insurers are non-admitted carriers. That means, they’re not licensed (“admitted”) in the state where you live, unlike a typical insurance company. Because they aren’t licensed locally, they don’t have to follow the same rules, meaning less protection for you and more free rein for them. They can charge what they want, change terms whenever they want and include unfair claim settlement practices, and basically operate with almost no oversight. And if they go under after a disaster, there’s no guarantee you’ll get your claim covered. The trade off being, they’ll insure rare or new risks that regular companies won’t touch. 

What happens when specialty becomes the only option? 

On paper, surplus lines insurance could serve a legitimate purpose (as we saw with our statue). But what happens when surplus lines become your only option, not because your risk is genuinely unusual, but because standard insurers have simply decided your neighborhood, your business type, or your demographic isn’t profitable enough?

After hurricanes and wildfires, homeowners are finding out for the first time. Most folks in these areas don’t have exotic or niche insurance needs (unless they own a rare art piece). But that increasingly doesn’t matter. For regular people who want to insure their regular homes, climate change makes certain areas riskier, and major insurers are pulling out entirely. 

Before wildfires ravaged Los Angeles earlier this year, major insurance companies like State Farm had already paused coverage and sent notices to 30,000 customers saying they would no longer renew their coverage. While homeowners who cannot find coverage elsewhere can rely on a state-backed last resort, the minimal coverage leaves many people and affordable housing providers looking for alternatives. Companies offering surplus lines are already capitalizing on this exact scenario.

Now, homeowners who’ve never heard of surplus lines may find themselves with little choice but to pay “premium prices” to non-admitted carriers, sometimes charging triple what they used to pay. For someone who just lost what they’ve worked their entire life for, this could be a monumental price. 

Surplus lines companies profit while property owners are iced out

What makes this especially insidious is how surplus lines companies profit from crises. When hurricanes, wildfires, or other disasters make standard insurers uneasy, surplus line companies can swoop in not as genuine relief providers, but as opportunistic disaster capitalists. Without other options in the market, they can essentially name their price. 

Recent investigations by outlets like Bloomberg and NPR have revealed how insurance companies, including surplus lines carriers, have been funneling billions in profits to parent companies and investors while publicly claiming losses from disasters. It’s a not-so-sophisticated shell game where companies cry broke to justify rate hikes, while simultaneously fattening the pockets of shareholders. 

And the worst part? After a disaster, there’s also no guarantee you’ll get your claim covered. Admitted insurance companies are backed by a special fund (called a “guaranty” fund). If your admitted insurance company goes bankrupt, the guaranty fund will pay your claim. But non-admitted insurers aren’t required to participate in that fund, meaning they can leave you out in the cold if they go under. 

Specialized insurance – or a scam?

(I have 100 on scam, Alex!)

An unregulated market might be fine for art collectors, tech entrepreneurs or the wealthiest clients; they know the risks and they have the money to take them. But when surplus becomes the default and desperation meets deregulation, the vulnerable people pay the price. As climate disasters get worse, these companies could start to target unsuspecting consumers or anyone excluded from mainstream financial services.  

Historically, there’s been discrimination against Black and Latinx folks when it came to mortgage lending and bank loans. This phenomenon of racism leads to people of color having no options but to accept subprime loans and insurance, regardless of qualifications. When insurance companies left many urban areas in the 1960s, non-admitted off-shore insurers crept in to fill the void, offering exploitative prices with no guarantees.

Just as predatory lenders targeted communities of color with subprime mortgages, non-admitted insurance could become a backdoor for shady practices, subpar insurance and a cover for post-disaster scams. The justification is different—it’s about “risk” rather than explicit discrimination—but the outcome remains the same: vulnerable communities paying more for essential services while getting less in return, and possibly nothing at all.

Disaster coverage shouldn’t be a luxury good

The surplus lines market was supposed to fill a legitimate gap in insurance coverage. But it’s also become a way for companies to profit from devastation and desperation and barely any protections for consumers.  When your home is damaged and you need coverage to rebuild, this is the exact moment companies charge the most. And there’s no guarantee they’ll be around if disaster hits again. 

The surplus lines industry didn’t create this problem alone. But it’s the latest response that profits off panic and privatizes recovery. The real tea is that you didn’t even know it existed until now. 

The longer politicians and regulators turn a blind eye, the more entrenched this system will become. We don’t need disaster capitalists making climate change worse. We need real action to protect people’s homes. And we need it before the next disaster becomes someone else’s golden parachute.