How COVID-19 Impacts the Surplus Lines Insurance Industry

COVID-19 has majorly disrupted the global economy, and while many business sectors are subjected to temporary shutdowns or bare minimum operations, the insurance industry is a racing forward while confronting unprecedented amounts of risk and uncertainty. Under most state-issued business shutdown orders, insurance companies and agencies have generally made the cut as “essential businesses” that are allowed to continue operating, but the onslaught of COVID-19-related insurance claims, state insurance departmental requests and potential legislation compelling coverage of certain business interruption losses may make the “essential business” designation ultimately seem like a consolation prize.

Yet, the surplus lines insurance industry may not bear the full brunt of COVID-19’s impact on the insurance industry. To what extent surplus lines insurers are compelled to respond to COVID-19 claims from their insureds or are otherwise subject to state orders and legislation must be carefully reviewed on a case-by-case basis. On the one hand, the surplus lines insurance industry has historically been exempt from the traditional insurance rate and policy form filing requirements applicable to licensed insurance companies; on the other hand, nearly all states apply some of their laws to eligible surplus lines insurers and, accordingly, a number of states have already made clear that surplus lines insurers will be treated the same as their licensed company counterparts with respect to COVID-19 directives.