Understanding the Surplus Lines Market: Why It Matters for Policymakers
By Frank Paul Tomasello, Executive Director, The Institutes Griffith Insurance Education Foundation
The surplus lines market is often misunderstood. For some, it may sound like a corner of the insurance marketplace reserved only for the most difficult or undesirable risks. But as a recent Griffith Foundation educational panel made clear, that view misses the broader and more important role this market plays.
The surplus lines market, often called the excess and surplus lines or non-admitted market, exists to provide coverage for risks that do not fit neatly within the standard admitted market. These may include unique risks, large-capacity risks, catastrophe-exposed risks, or emerging exposures tied to areas such as cyber liability, artificial intelligence, autonomous vehicles, and other evolving technologies.
During the panel discussion, Dr. Brad Karl of Florida State University offered a helpful clarification: “The surplus lines market is not where bad risks go; it’s where non-standard risks go.” That distinction is important, especially for policymakers who are working to understand insurance availability, market capacity, and the changing nature of risk.
The surplus lines market has long served as a source of flexibility when traditional markets cannot respond quickly enough to new or complex exposures. That flexibility is one reason the market is often described as a relief valve. It allows businesses, consumers, and emerging sectors of the economy to access coverage that may not otherwise be available.
At the same time, the market is not without oversight. West Virginia Insurance Commissioner Allan McVey emphasized during the discussion that surplus lines should not be viewed as unregulated. Rather, it is regulated differently. States continue to monitor financial condition, apply unfair claims practices laws, and require brokers to conduct a diligent search of the admitted market before placing coverage in the surplus lines space. What differs is the regulatory approach to rates and forms, which gives the market the flexibility needed to address non-standard risks.
That balance between flexibility and oversight is becoming increasingly important. Mark Shealy, executive director and CEO of the Florida Surplus Lines Service Office, noted that the national surplus lines market now represents roughly $115 billion in premium, with Florida, Texas, and California accounting for about half of that total. Growth in the market reflects several forces, including admitted market pullbacks in certain high-risk geographies, rising catastrophe exposure, and demand for coverage in areas where risks are evolving faster than traditional insurance products.
For policymakers, the takeaway is not that the surplus lines market should be viewed as separate from the broader insurance system. It should be understood as part of that system. The admitted and non-admitted markets often work together, shifting capacity and responding to risk in different ways depending on market conditions.
As insurance availability and affordability remain central concerns across many states, understanding the surplus lines market is essential. It plays a meaningful role in supporting economic activity, helping new industries develop, and providing coverage options when traditional markets are limited.
At Griffith, our role is not to advocate for a particular policy outcome. Our mission is to provide educational resources that help public policymakers better understand insurance and risk management issues. The surplus lines market is one of those topics where a strong foundation matters.
As risks continue to evolve, policymakers will benefit from understanding not only how this market works, but why it exists, how it is regulated, and how it fits within the larger insurance ecosystem.