Walker & Company
Surplus Lines vs. Admitted Carriers: What Law Firms Need to Know
When it comes to professional liability insurance, most firms assume the “best” policy will always come from an admitted carrier. After all, admitted insurers are licensed and regulated by the state, right? While that’s true, the reality is more nuanced. Surplus lines (also called non-admitted) carriers exist for a reason—and sometimes they’re the better fit, even for well-established law firms.
Admitted Carriers: The Regulated Route
What they are
Admitted carriers are licensed by the state department of insurance. This means they must follow state regulations around pricing, policy wording, and claims handling. If one of these insurers goes insolvent, the state guaranty fund can step in to cover claims (up to certain limits).
Pros
- Backed by the state guaranty fund for extra protection.
- Policies must be filed and approved by regulators, which often means more standardized terms.
- Generally considered more “mainstream,” which can be helpful when satisfying client or lender insurance requirements.
Cons
- Less flexibility in coverage—policy forms are standardized and may not adapt well to unique risks.
- Pricing is more rigid due to regulatory oversight, which can make admitted options more expensive in certain markets.
- Carriers may decline firms with claims history, niche practice areas, or higher perceived risk.
Surplus Lines Carriers: The Flexible Alternative
What they are
Surplus lines insurers are not licensed by the state but are approved to do business through specially licensed brokers. They don’t have to file rates or policy forms with regulators, giving them more flexibility to design coverage for unusual or higher-risk firms. Importantly, they’re still reputable companies—many are large, financially stable insurers that simply operate outside the admitted framework.
Pros
- Customizable coverage tailored to unique risks.
- Willing to insure firms that admitted carriers decline.
- Flexible underwriting means they can sometimes offer better pricing than admitted carriers, especially if they view your firm’s risk more favorably than the standard market.
Cons
- Not protected by the state guaranty fund if the carrier fails.
- Policy terms can vary widely—important to carefully compare definitions, exclusions, and endorsements.
- Premium taxes and fees are typically a bit higher.
When Surplus Lines Make Sense
Surplus lines isn’t a last resort—it’s a parallel market designed for risks the standard market doesn’t love or can’t price efficiently. It can be the smarter (and sometimes cheaper) route when:
- Your practice mix includes higher-risk areas (e.g., securities, IP/patent, mass tort/class action, plaintiff med mal).
- Your firm is new, scaling quickly, or has a prior claims history that spooks admitted carriers.
- You need unusual terms or higher limits that standard markets won’t offer.
- An admitted quote feels out of step with your actual risk—surplus lines underwriters might assess you more favorably.
- You want tailored endorsements or manuscript wording to fit your operations.
Yes, surplus lines includes state taxes and stamping fees, but the total premium can still come in lower than an admitted option if the underwriting fit is better.
When an Admitted Carrier Makes More Sense
- Your practice is mainstream/low-hazard and easily fits admitted underwriting “boxes.”
- You value the state guaranty fund backstop and the predictability of filed forms and rates.
- Clients, lenders, or contracts explicitly prefer/require admitted carriers.
- You don’t need custom wording—standard forms cover your exposures just fine.
How to Compare—Apples to Apples
Price matters, but coverage details matter more. When we line up admitted vs. surplus lines quotes, we scrutinize:
- Insuring agreement & definitions: How “professional services,” “claim,” and “insured” are defined.
- Prior acts/retro date: Whether your past work is covered, and from what date.
- Consent-to-settle (hammer): Soft vs. hard hammer impacts your leverage in settlement.
- Exclusions & endorsements: Niche practice carve-outs can be deal-breakers—or fixable with endorsements.
- Defense provisions & deductibles: Erode vs. not, and first-dollar defense options.
- Disciplinary & regulatory sublimits: Useful for board/court actions; amounts vary widely.
- Claims handling: Panel counsel options, reputation, and responsiveness.
- Financial strength: AM Best rating and stability carry more weight than admitted status alone.
Common Myths—Quick Reality Check
- “Non-admitted means risky.” Not necessarily. Many surplus lines insurers are large, well-rated companies.
- “Admitted is always cheaper.” Usually, but not always—fit and underwriting view drive price.
- “Certificates must show an admitted carrier.” Most clients care about limits and COI details; admitted is rarely required.
So…Which Should You Choose?
Start with the goal: the right protection at a fair price, with an insurer that will show up when it counts. For many firms, an admitted policy will check the boxes. For others, surplus lines delivers better wording, more flexible underwriting, and—surprisingly—sharper pricing.
Either way, the smart move is to compare both paths side-by-side with an advisor who knows the market.