Small Business Owners: How Aware Are You of the Advantages of Excess and Surplus Insurance?
The E&S market is booming and is one of the fasting growing sectors in the insurance industry. Surplus lines premiums increased 22%, with a 6.6% growth in transactions in 2021 in the 15 states with designated surplus lines stamping offices.
Big growth areas include construction, energy, health care, environmental and professional liability. These might seem to focus on larger businesses, but main street small businesses are candidates for E&S coverage as well.
E&S insurance is a specialty insurance market for high-risk exposures that are often hard to place or unusual risks for small to mid-sized firms not written by the standard insurance market. Traditional insurance, also described as standard insurance, is heavily regulated and has less flexibility in the risks it can cover.
E&S insurance companies are regulated within their home state but aren’t as strictly regulated in the states where they sell policies. Companies with elevated risks often need E&S insurance because the admitted market considers them too risky to cover.
Businesses of all sizes face potential risk exposures as client expectations increase and lawsuits become more common. Complex risk exposures require brokerage experience and sound judgment to succeed.
E&S insurers can have more flexibility with the risks they choose to cover and their premiums for that coverage. This freedom allows carriers to adapt to business trends faster than standard insurers and create customized coverages for their clients.
Impact of COVID-19
The COVID-19 pandemic has impacted everyone, from small businesses to large corporations. The pandemic brought economic upheaval, supply chain issues, social and economic inflation and different types of risks that companies never considered just a few years before.
The pandemic has hit small businesses even harder than larger businesses with increased costs, labor shortages, and closures, which then impacts the overall economic outlook.
On top of recovering from COVID-related shutdowns, this past year also brought cyber attacks and extreme, disruptive weather events, which have increased risks to main street businesses. All of these uncertainties have led to a hardening E&S market.
Small Business E&S Needs
Small businesses can have unique and complex challenges that might not fit under the usual commercial insurance umbrella. E&S insurers can provide customized coverage for them that is not available in the standard market.
There are several reasons why small businesses might need E&S insurance, including business tenure and the type of profession. Admitted insurance carriers often view businesses with less than three years of experience as high-risk.
Also, standard insurance might consider companies that use hazardous equipment or work in dangerous areas too risky to cover. Types of high-risk industries would include:
- General contractors
- Tree trimmers
E&S insurance can help to fill in the coverage gap. They can offer more flexibility to meet the needs of small businesses.
Opportunities to Consider
AM Best has stated that the insurance market faces several potential risks due to the lingering impact of COVID-19. However, this offers great potential for the flexibility of the E&S market. &