Episode: Hot Trends to Watch
Hosts: John Emmanuel and Zachary Lerner
Aired: April 29, 2026
Zachary Lerner (00:16):
Hi, I’m Zach Lerner. I’m here with my partner, John Emmanuel. And today we’re going to talk about hot trends in the surplus lines market, at least in our view. I’ll kick it off to John to start with a few of the trends we’ve been seeing in the space these days.
John Emmanuel (00:27):
Thanks Zach. One area where we’ve seen increased regulatory scrutiny for surplus lines insurers is data calls. Regulators want to get more information from surplus lines insurers as they do admitted insurers. We think a number of reasons why this is the case is, one, the growth in surplus lines, because it impacts a lot more of the insurers in a state. And secondly, insurers are getting more involved in personal lines such as homeowners, in areas where there are hurricanes, for example, earthquakes or wildfires in California, and therefore where there are these catastrophes, regulators want information from the surplus lines insurers. And there have been plenty of data calls, especially since Covid.
In other areas, moratoriums. For example, when there are catastrophes, states want to enforce moratoriums against cancellation and non-renewal. And they’ll actually have expressed requirements that these apply to surplus lines insurers as well as admitted insurers. Now sometimes these notices apply just to all insurers, so this can be a little guessing game as to whether or not it does extend. But sometimes it does, sometimes it doesn’t.
Zachary Lerner (01:26):
And what about the domestic surplus lines market, right? There’s an uptick in states that allow for insurers to be formed exclusively to place surplus lines coverage.
John Emmanuel (01:32):
And that’s an area that we have seen some growth. There’s a few years ago when we saw the introduction of more and more DSLIs, which is where the home state allows an insurer that is domesticated there to write surplus lines in that state, therefore allowing for a company to write surplus lines everywhere. Traditionally, you’d have to be licensed in your home state before you can write surplus lines in all the other states, the 49 plus 1 model. But with the introduction of DSLIs, which I believe is now 22 or 23 states, you can now be a domestic surplus lines company where you can write surplus lines in your home state, as well as the other 49 states.
John Emmanuel (02:07):
Let’s talk a bit about the broker world. In particular, diligent search requirements. We’ve seen a trend towards relaxation of that requirement a bit over the years. So up until this year, there were four states – Louisiana, Virginia, Mississippi and Wisconsin – that had no diligent search requirement. You can go straight to the surplus lines market without having to go to mid-carriers first. This year, Florida joined that group as well, getting rid of its diligent search requirement, which is a pretty huge development in the industry, that one of the very large states, traditionally with a huge bifurcation between the admitted and surplus lines markets, is now allowing for exportation without the diligent search, subject to a few caveats.
In addition, there’s a number of other states that are passing statutes allowing for the surplus lines broker to forgo the diligent search requirement if it utilizes a retail agent in the transaction as well, under the theory that the retail agent would have already surmised that no admitted market capacity is available. So we’re seeing a trend towards flexibility with respect to the diligent effort requirement.
Now, we caution that there are some states out there that really look at this issue from a completely different perspective. So Maine, for example, requires total admitted market non-availability to export coverage to the surplus lines market. Even if that surplus lines broker doesn’t have access to that admitted company’s paper, if there is one admitted company that will write that coverage, that will disqualify it from being exported to the surplus line market.
Another trend we’re seeing is the utilization of online apps, websites, etc., to instantaneously bind coverage in the surplus lines market. While we, of course, support the efficient distribution and binding of insurance coverage, it does bring up age-old questions regarding how you place surplus lines insurance. While I did just get done talking about the relaxation of the diligent search requirement, the states that still have it, you have to figure out how you are going to abide by that requirement if you are going to instantaneously bind coverage. So some clients of ours develop strategies where at least a retail agent needs to certify that that diligent effort has been completed before a button can be clicked to bind that coverage. Of course, there are other surplus lines procedure requirements to take into account as well when you are selling coverage through the internet or through an app-based platform.
John, I think you’re going to talk a bit about some rebating issues as well.
John Emmanuel (04:19):
Yeah, just something to note. Rebating – a lot of people, especially new entrants, want to provide something of value back to the insured for placing insurance with them. Now, traditionally, there’s a rebating or inducement prohibition where you can’t offer anything of value to somebody except for some nominal amount. But there has been a recent kind of change in the rebating inducement statutes, which allow what they call value-add services, something related to perhaps loss control or related to that coverage itself that provides some benefit in a loss scenario. And those things can be allowed in those states that have adopted that amendment.
Zachary Lerner (04:54):
Well, those are just some of the hot topics we’ve seen in recent months and years. And we’re happy to discuss more in the future. Thank you so much for your time.
Copyright, Troutman Pepper Locke LLP. These recorded materials are designed for educational purposes only. This podcast is not legal advice and does not create an attorney-client relationship. The views and opinions expressed in this podcast are solely those of the individual participants. Troutman does not make any representations or warranties, express or implied, regarding the contents of this podcast. Information on previous case results does not guarantee a similar future result. Users of this podcast may save and use the podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing of this podcast may be made without the prior written permission of Troutman Pepper Locke. If you have any questions, please contact us at troutman.com.
DISCLAIMER: This transcript was generated using artificial intelligence technology and may contain inaccuracies or errors. The transcript is provided “as is,” with no warranty as to the accuracy or reliability. Please listen to the podcast for complete and accurate content. You may contact us to ask questions or to provide feedback if you believe that something is inaccurately transcribed.
