Standard Market vs Surplus Lines: Understanding Your Insurance Market Options as a Roofer
When you shop for roofing contractor insurance, the quotes you receive may come from two very different types of markets: standard (admitted) carriers and surplus lines (E&S or non-admitted) carriers. Understanding the difference between these markets helps you evaluate quotes, understand your coverage, and make informed decisions about who is backing your policy.
What Makes a Carrier "Standard" or "Surplus Lines"
Standard market carriers are licensed (admitted) in your state and regulated by your state's Department of Insurance. They file their rates and policy forms with the state for approval, and they participate in your state's guaranty fund, which protects policyholders if the carrier becomes insolvent. Major carriers like Hartford, Liberty Mutual, Travelers, and others operating in the roofing space are standard market carriers.
Surplus lines carriers are not licensed in your state but are approved by your state's Department of Insurance to write surplus lines business. They do not file rates or forms with the state, giving them more flexibility in pricing and coverage terms. They are not backed by state guaranty funds. Notable surplus lines carriers that write roofing include Lloyd's of London syndicates, Scottsdale, and various specialty markets.
Why Roofers End Up in the Surplus Lines Market
The roofing trade is classified as high-hazard by every insurance carrier, which means standard market underwriting guidelines are strict. Several common situations push roofers into the surplus lines market.
Claims history is the most common reason. If you have had two or more GL claims in the past three years, or a single large workers comp claim, most standard carriers will decline your renewal. A roofer who had a $200,000 completed operations claim and a $150,000 bodily injury claim within two years will likely be non-renewed by their standard carrier and need surplus lines placement.
Type of work also drives market selection. Standard carriers generally write residential roofing and low-rise commercial roofing (one to three stories) without hot-applied systems. If you do commercial roofing above three stories, install BUR (built-up roofing) with hot kettles, or perform torch-applied modified bitumen work, many standard carriers will decline the risk entirely. Surplus lines carriers specialize in accepting these higher-risk operations.
New businesses face similar challenges. A roofing company with no operating history and no loss runs has no track record for a standard carrier to evaluate. Many standard carriers require two to three years of operations and clean loss history before they will write a roofing account. Surplus lines carriers are more willing to write new ventures, though at higher premiums.
Cost Differences
Surplus lines premiums are substantially higher than standard market. A residential roofing contractor paying $5,000 for GL in the standard market might pay $7,500 to $10,000 for equivalent coverage through surplus lines. Workers comp differences can be even more dramatic because surplus lines carriers writing high-hazard roofing classes may charge rates 50% to 100% above standard rates.
In addition to higher base premiums, surplus lines policies carry state-mandated surplus lines taxes and stamping fees that range from 3% to 8% depending on your state. On a $15,000 total premium, that is an additional $450 to $1,200 in taxes that do not exist on standard market policies.
Surplus lines carriers may also require higher deductibles. Where a standard market GL policy might carry a $1,000 deductible, a surplus lines carrier might require $2,500 or $5,000 per claim. Some surplus lines programs use self-insured retentions (SIRs), which function like deductibles but with the added requirement that you pay defense costs within the retention amount.
Coverage Differences
Standard market policies typically use ISO (Insurance Services Office) standard forms that are widely understood and tested by courts. Surplus lines carriers often use proprietary policy forms that may differ from ISO standards in important ways. These differences can include broader exclusions for certain types of work, different additional insured endorsement language, modified completed operations coverage, or non-standard cancellation provisions.
Always review surplus lines policy forms carefully with your agent. Do not assume that a surplus lines GL policy provides the same coverage as a standard market GL policy just because both are called "general liability." Pay particular attention to the additional insured endorsement, completed operations coverage, and any exclusions specific to roofing operations.
Financial Security Considerations
The lack of state guaranty fund backing is a real risk with surplus lines carriers. If your standard market carrier becomes insolvent, the state guaranty fund will typically pay your covered claims up to certain limits (often $300,000 to $500,000 per claim). If your surplus lines carrier becomes insolvent, there is no such safety net. Your claims would be subject to the carrier's liquidation proceedings, and recovery could be minimal.
To mitigate this risk, check the AM Best rating of any surplus lines carrier before binding coverage. Look for carriers rated A- (Excellent) or better. Your state's surplus lines office also maintains a list of approved surplus lines carriers, and typically only financially sound carriers are eligible. Do not accept coverage from an unrated or poorly rated surplus lines carrier regardless of how low the premium is.
Building Your Way Back to Standard Market
If you are currently placed in the surplus lines market due to claims history or new business status, your goal should be to work your way back to the standard market over two to three years. This means implementing a strong safety program, maintaining a clean claims record, documenting your operations professionally, and working with an agent who has relationships with standard market carriers that write roofing.
Each clean year in the surplus lines market improves your profile for standard market underwriters. After two to three years with no claims and stable operations, most standard carriers will re-evaluate your account. The savings from transitioning back to the standard market can be $3,000 to $15,000 per year depending on your operation size, making the investment in safety and loss prevention well worth it.