Understanding Surplus Policies: What You Need to Know
When your insurance agent offers you a surplus policy at an attractive rate, it might seem like a great way to save money. But before you sign on the dotted line, it’s crucial to understand what you’re agreeing to. Surplus insurance policies, while providing coverage when standard insurers won’t, come with different risks and restrictions that could cost you more in the long run.
At Panther Public Adjusting, we’ve seen homeowners in Orlando, Tampa, Miami, and Jacksonville struggle with surplus policies that left them with unexpected expenses and legal hurdles when they needed to file a claim. In this post, we’ll break down what surplus lines insurance is, the risks involved, and whether or not it’s worth considering for your home.
What Is a Surplus Policy?
Surplus lines insurance is designed for risks that traditional (admitted) insurers find too hazardous or unconventional to cover. These policies are underwritten by surplus lines insurers, who are not licensed by the state but are permitted to operate under special regulations.
Unlike standard homeowners insurance policies regulated by the Florida Office of Insurance Regulation, surplus insurers are not bound by the same consumer protection laws. This means they can offer coverage on their terms, which can sometimes be restrictive or even risky for homeowners.
Why Are Surplus Policies Offered?
Your insurance agent may recommend a surplus policy if:
- Your home is in a high-risk area (such as coastal Florida regions prone to hurricanes).
- You have an older home that doesn’t meet modern building codes.
- You’ve made multiple claims in the past, making you a higher-risk policyholder.
- Your property has unique features that standard insurers won’t cover.
- The premiums may be significantly cheaper than those offered by admitted insurers. Many homeowners opt for surplus policies due to the lower premiums, making them an attractive option for those looking to save money upfront. However, these cost savings can sometimes come at the expense of important coverage and protections.
While surplus insurance policies can serve a purpose, they often come with hidden downsides that policyholders don’t realize until it’s too late.
The Risks of Surplus Insurance Policies
While surplus policies can provide coverage when traditional insurers won’t, they may contain provisions that could be disadvantageous to homeowners. Here are some key risks to consider before agreeing to a surplus policy:
1. No Regulation = Less Consumer Protection
Unlike admitted insurers, surplus carriers do not have to follow Florida’s insurance laws. This means:
✅ They can increase premiums without state approval.
✅ They can deny claims more easily.
✅ They don’t have to participate in state-backed insurance guarantee funds, meaning you could lose coverage if the company goes bankrupt.
2. Binding Arbitration Clauses
Some surplus policies require binding arbitration instead of allowing policyholders to take disputes to court.
What does this mean for you?
- If the insurance company denies your claim or offers a low settlement, you cannot sue them in court.
- Instead, you must go through arbitration, where an appointed third party decides the outcome.
- Arbitration often favors the insurance company, limiting your ability to fight for a fair payout.
3. Out-of-State Arbitration Requirements
Even worse, some policies require arbitration to take place in another state—such as Rhode Island or Texas—making it nearly impossible for Florida homeowners to dispute their claims without excessive travel costs.
Imagine needing to fight a $5,000 claim in Rhode Island, paying for flights, hotel stays, and legal representation just to get what you’re owed. This is a serious red flag in surplus policies.
4. No Appraisal Clause = No Dispute Resolution
Many standard Florida homeowners’ policies include an appraisal clause, which allows policyholders to dispute a claim amount by bringing in independent appraisers.
However, many surplus policies do not include this clause, meaning you have no option for resolving disputes except to accept what the insurance company offers, go to arbitration (which is often rigged against you), or pursue litigation.
5. Limited Coverage & Exclusions
Surplus policies often have more exclusions than traditional policies, meaning they might not cover damage from hurricanes, floods, or even burst pipes.
- Does the policy cover water damage from a burst pipe?
- Does it cover mold remediation if you have a leak?
- Does it exclude roof damage unless there’s visible structural collapse?
Many homeowners don’t realize these exclusions exist until they file a claim—and by then, it’s too late.
Real-Life Example: The Hidden Pitfalls of Surplus Policies
A homeowner reached out to us for help with their hurricane claim. They had a surplus policy that included an anti-public adjuster clause. As such, instead of hiring a Public Adjuster, which would have been less expensive and likely faster, they had no choice but to hire an attorney to represent them. This led to additional delays and increased legal fees, making the claims process significantly more challenging than it needed to be.
If they had a standard Florida homeowners policy, they could have avoided these hurdles and resolved their claim more efficiently. This highlights the importance of carefully reviewing surplus policies before committing to them.
Is a Surplus Policy Ever a Good Idea?
Not all surplus policies are bad. In some cases, they can provide necessary coverage, especially if:
✅ Your only other option is having no insurance at all (e.g., if your home is in a high-risk hurricane zone).
✅ The premium savings are substantial and outweigh the risks.
✅ You fully understand the policy’s exclusions and are comfortable with the limitations.
However, in most cases, a surplus policy should be a last resort rather than your first choice.
What You Should Do Before Agreeing to a Surplus Policy
If your agent offers you a surplus policy, follow these steps before signing:
- Ask for the full policy document. Do not rely on a summary—read the fine print.
- Check for arbitration clauses. Avoid policies that require out-of-state arbitration.
- Look for an appraisal clause. This protects your ability to dispute claims.
- Review all exclusions. Make sure you understand what’s not covered.
- Consult with a public adjuster. We can review your policy and help you avoid bad coverage.
Need Help Reviewing Your Policy? We’ve Got You Covered!
At Panther Public Adjusting, we help homeowners in Miami, Tampa, Orlando, Jacksonville, Fort Lauderdale, and beyond navigate the confusing world of insurance policies. Whether you’re considering a surplus policy or need help with a denied claim, we’re here to fight for you.
📞 Call us today at 833-726-8437 for a free consultation.
📩 Email us your policy for review at Claims@PantherPA.com.
💻 Visit us online at pantherpa.com/#contact.
Want to Learn More? Check Out These Helpful Resources:
📌 What Happens to My Policy When I File a Claim?
📌 The Hidden Costs of Insurance You Need to Know
📌 Why Your Roofer Can’t Handle Your Insurance Claim
Don’t wait until it’s too late! Get the right insurance advice today and protect your home the smart way.