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The E&S lines marketplace Coverage availability Typically, E&S lines provide coverage for risks that are "unplaceable" in the standard marketplace. With the broad range and diversity of markets around the world, this translates into the availability of broader coverages. Most original quotes are more restrictive than the standard market due to the nature of the risk seeking coverage, and broader coverage must be negotiated E&S carriers tend to develop underwriters who are specialists in one or a few types of risks, rather than standard companies whose underwriters are more often generalists. This knowledge gives the underwriter the ability to understand the risk and all of its complexities thoroughly and to be more flexible in underwriting coverages. Pricing the policies Is there a difference in the pricing between admitted and non-admitted in the E&S market? Generally this will depend on the class of business, but as a rule E&S is E&S whether admitted or non-admitted. Minimum earned premiums v. minimum deposit premiums A "minimum earned premium" is the minimum amount earned by the carrier no matter how many days the policy is in force. A "minimum deposit premium", on the other hand, is the minimum premium a carrier will charge for the full-term policy. Audits are upwards only. This can be negotiated on larger accounts. Target premiums Find out what you need to place the risk. It may be a waste of your time if the insured will not tell you what they are paying and what the premium basis is. Commissions Are commissions different in the E&S marketplace? The typical E&S broker will charge a fee in addition to the commission given by the carrier. The commissions may be less than what you are familiar with in the standard marketplace and the E&S broker splits that with the agent. This is negotiable as are the fees that the E&S broker charges. Broker fees Besides needing to be a broker to charge broker fees, other restrictions apply: Thought this last point is not really defined, be prepared to back up high fees with documentation of high servicing obligations. It is not illegal to receive a commission from the issuing carrier and charge a fee. Again, be prepared to demonstrate to a DOI auditor that the fee plus commission is reasonable. Note that many brokers do one or the other, not both. Brokers fees are subjective. If the E&S broker is getting 15 - 17.5% commission from the company and paying the agent 10%, it is common to see a 2.5 - 5% fee to bring the E&S broker income to around 10%, as well. All brokers fees are negotiable; policy fees are not. MGAs charge the policy fee only based on the contract they have with the carrier. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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