Exploring Excess and Surplus Lines: A Shift for Independent Agencies
Smaller independent insurance agencies are increasingly exploring the excess and surplus lines market to manage complex client risk profiles effectively.
This shift is largely facilitated by wholesalers, who bridge the gap between agencies and these specialized markets. However, it also presents additional challenges, such as managing extensive underwriting processes and premium financing. Matt Masiello, CEO of SIAA—a network supporting independent agencies—highlights the need for agencies to both locate the right markets and cultivate the necessary expertise to serve these markets and their clients effectively.
Excess and Surplus Lines Gaining Traction
According to the Big “I” 2026 Market Share Report, the use of surplus lines within the independent agency sector is expected to reach 9.9% by 2025, marking an increase from a previous five-year average of 9.3%. As of 2024, 61% of agencies utilize wholesale brokers for commercial lines, a notable rise from 53% in 2022, indicating a shift toward embracing these markets. This trend underscores a growing recognition among smaller agencies that while wholesalers open doors to more complex insurance scenarios, the agency must still manage detailed submissions and broker-client communications effectively.
Challenges and Necessities for Agencies
Smaller agencies historically engaged wholesalers less frequently than their larger counterparts. However, enhanced market access through wholesale brokers does not exempt agencies from the intricacies of the placement process. Complexities in submission requirements and additional information needed for excess and surplus lines, compared to admitted carriers, can create challenges. Masiello points out the additional difficulty in understanding billing issues, such as minimum earned premiums and agency-billed business risks, which require careful attention to minimize financial exposure.
| Trend | Description |
|---|---|
| Increased Wholesale Use | 61% agencies used brokers for commercial lines in 2024. |
| Expanding Surplus Lines | Market use expected to hit 9.9% by 2025. |
Technology as a Solution
Technology offers a pathway to streamline these challenges. SIAA’s wholesale team leverages artificial intelligence to refine submissions, ensuring comprehensive coverage requirements are met while reducing repeated information requests. This allows for more efficient interaction between wholesalers and underwriters, ultimately resulting in more strategic and informed decision-making by agents.
Future Opportunities and Growth
As agencies grow and specialize, especially in sectors like high net worth, transportation, benefits, or nonprofits, the demand for robust market connections becomes essential. Smaller agencies, which constitute a significant portion of the market with approximately 80-85% earning under $2 million in revenue, are a prime target for carriers aiming to expand their premium volumes. These agencies can transform into vital partners for wholesalers and non-admitted carriers aiming for growth and diversification.