This week I am in Atlanta hanging out at the annual NAPSLO convention. NAPSLO is the Nat’l Association of Professional Surplus Lines Offices – but if you don’t know that already, it probably still doesn’t make much sense. After all, what’s a “surplus line”? It sounds like an empty subway, or maybe the third line at a square dance.
Here is NAPSLO’s definition: surplus lines insurers fill the need for coverage in the marketplace by insuring those risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers.
Further, there are three categories of such risks:
- Non-standard risks, which have unusual underwriting characteristics.
- Unique risks for which admitted carriers do not offer a filed policy form or rate.
- Capacity risks where an insured seeks a higher level of coverage than most insurers are willing to provide.
Just because it’s surplus, though, doesn’t mean it’s a small sector - $38B in annual written premium in the US is a significant portion of the market.
But why am I here?
Flood insurance is a perfect surplus product, not only because it fits category 3 above (excess on top of NFIP policies), but because it is non-standard. Fantastically non-standard. And underwriting non-standard risks requires non-standard risk assessments and analytics. Standard flood maps or standard reports that are the same for everyone isn’t enough for flood, or other surplus lines risks.
NAPSLO characterizes the surplus lines as a safety valve for insurance, but my opinion is different. Surplus lines are where innovation happens, where underwriters figure out risks, and tailor policies for them, where property owners and other risk takers can get the coverage they need for their business or livelihood. Not so much a safety valve as, maybe… risk ninjas.
It is largely the surplus lines that are bringing private flood insurance to the market in the U.S. The underwriters and their managers gathered in Atlanta this week are the ones who are applying their experience, their resources, and (not least) their imaginations to filling a need in the property insurance market. And I’m here to see if I can help.