Excess & Surplus Lines (E&S) insurance plays a critical role in providing coverage for unique, emerging, or higher-risk exposures that the admitted market is unable or unwilling to insure. One of the most common points of confusion for insureds and retail agents alike involves minimum earned premiums and deposit (fully earned) premiums. Understanding how these premiums work and why they exist can help set proper expectations and avoid disputes at policy expiration.
What Is a Deposit Premium?
A deposit premium is the initial premium paid at policy inception. In the E&S marketplace, this amount is typically based on estimated exposures (such as payroll, sales, receipts, or units) rather than guaranteed final figures.
Unlike many admitted policies, the deposit premium on an E&S policy is often fully earned. This means the premium is non-refundable once coverage begins, regardless of whether the policy is later canceled or expires with lower-than-expected exposures.
What Is a Minimum Earned Premium?
A minimum earned premium is the least amount of premium the carrier will retain for providing coverage, even if the policy is canceled mid-term or exposures decrease. It is usually expressed as a percentage (e.g., 25%, 50%, or 100%) of the total policy premium.
Why E&S Policies Use Minimum and Fully Earned Premiums
Minimum and deposit premiums are standard in the E&S market for several key reasons:
- Underwriting Complexity and Volatility
E&S risks are often non-standard, emerging, or higher hazard. Considerable underwriting effort, engineering review, and pricing analysis occur before a policy is bound. - Limited Market Availability
Many E&S risks have few, or sometimes only one, market willing to offer terms. The premium reflects the cost of providing capacity where the admitted market cannot. - Short-Term or Uncertain Exposure
E&S policies frequently insure project-based, seasonal or evolving exposures. A minimum or fully earned premium ensures the carrier is compensated for assuming risk, even if the exposure changes or ends early. - Administrative and Regulatory Costs
E&S placements involve surplus lines taxes, stamping fees and compliance requirements that are incurred at binding and are not recoverable upon cancellation.
How Audits Work Under E&S Policies
Some E&S policies are auditable, while others are not. Even when audits are permitted:
- Upward audits may apply if final exposures exceed estimates.
- Downward audits are typically limited or prohibited if the policy carries a fully earned or minimum earned premium.
In other words, while an insured may owe additional premium if exposures increase, they should not expect a refund if exposures are lower than anticipated.
Common Misconceptions
“If my sales/payroll went down, I should get a refund.”
Not necessarily. In the E&S market, reduced exposure does not override a fully earned or minimum earned premium provision.
“This is discretionary and can be waived.”
Minimum and deposit premiums are contractual terms, not discretionary decisions. Brokers and carriers generally do not have the authority to waive them.
“Another agent could have placed this without a minimum premium.”
Highly unlikely. Minimum earned and fully earned deposit premiums are standard across E&S carriers for similar risks.
Best Practices for Agents and Insureds
- Review premium terms before binding
Understand whether the policy is fully earned and whether audits are allowed. - Set expectations early
Communicate clearly that premium refunds are unlikely in the E&S market. - Estimate exposures carefully
Since downward adjustments are often limited, accurate estimates at inception are critical. - Document communications
Written confirmation of premium terms helps prevent disputes later.
Final Thoughts
Minimum earned and deposit premiums are foundational components of E&S insurance policies. While they differ from the premium structures commonly seen in the admitted market, they exist to support the availability of coverage for risks that otherwise may be uninsurable.
Understanding these provisions and communicating them clearly helps ensure smoother placements, stronger client relationships and fewer surprises at policy expiration.