How are premiums for surplus lines insurance typically determined?

Premiums for surplus lines insurance are typically determined based on the risk characteristics and loss experience associated with the insured party. This approach considers various factors, such as the nature of the risk being insured, the history of losses in similar situations, and the overall likelihood of future claims.

Surplus lines insurance often covers unique or higher-risk situations where standard insurance policies may not be available or adequate. Therefore, understanding the specific risks and past claims related to those risks allows insurers to set premiums that reflect the potential for loss. This risk-based approach is critical in the surplus lines market, where specialized coverage is often needed for non-standard or hard-to-place insurance cases.