Surplus lines market hits new premium record amid industry challenges

The U.S. surplus lines insurance market reached a significant milestone in 2023, surpassing $100 billion in premiums for the first time and recording over $115 billion in direct premiums, according to a new report by AM Best in collaboration with the Wholesale & Specialty Insurance Association (WSIA). This represents a robust 16.8% growth over the previous year, marking six consecutive years of double-digit expansion.

Key growth factors

The sharp rise in surplus lines premiums is largely fueled by increasing demand for non-admitted insurance solutions, particularly for properties exposed to catastrophes and complex liability risks. As climate-related events, such as wildfires and severe storms, grow more frequent and severe, traditional insurance carriers are increasingly cautious, creating opportunities for surplus lines providers. Lloyd’s of London, a key player in the market, reported a substantial 28.8% premium increase in 2023.

Additional drivers of growth include higher pricing for certain types of coverage and a surge in submissions from wholesalers and managing general agents (MGAs). Non-admitted carriers have been particularly adept at crafting policies for emerging risks, including those related to climate change and cybersecurity, underscoring the sector’s evolving role.

Resilience amid challenges

Despite economic headwinds like inflation, regulatory pressures, and the rise of secondary perils such as tornadoes and storms, the surplus lines market has shown remarkable resilience. Insurers have adapted by refining strategies, developing innovative solutions, and emphasizing long-term risk management.

The surplus lines sector’s growing role as a “safety valve” for the property and casualty (P/C) insurance industry is increasingly vital. It continues to provide customized solutions for high-risk exposures that standard markets shy away from, reinforcing its importance in the industry.

Premium growth and industry influence

The report noted significant growth in several lines of business, with non-professional general liability and property leading the way. Non-professional liability saw a 36.9% increase, while property premiums grew by 33.3%. Florida and Texas were among 11 states reporting double-digit premium growth, leading with 27.8% and 25.8%, respectively.

This premium surge reflects a larger trend: surplus lines are capturing a growing share of the P/C market. In 2023, surplus lines accounted for 23.7% of the total commercial lines direct premiums written in the U.S., up from just 7.1% in 2000.

Emerging opportunities

AM Best’s report also highlights the market’s potential to address emerging risks in sectors like artificial intelligence, cannabis, and environmental liabilities. These growing industries offer insurers opportunities to create specialized products tailored to increasingly complex risk environments. The surplus lines market is also dominating the U.S. cyber insurance sector, controlling 59.2% of the market in 2023.

Looking ahead, the report suggests that surplus lines insurers are well-positioned for continued expansion, especially as new risks and coverage needs arise in response to rapid technological and environmental changes.