Surplus Lines Taxes and Fees: What Businesses Pay in the E&S Market

The Hidden Cost of Surplus Lines Coverage

When you receive an E&S insurance quote, the premium isn't the only cost. Surplus lines taxes, stamping office fees, and sometimes broker fees add meaningfully to the total outlay. Understanding these costs helps you compare E&S options accurately and budget appropriately.

What Are Surplus Lines Taxes?

Every state imposes a surplus lines tax on premiums paid to non-admitted (E&S) carriers. This is one of the primary revenue mechanisms states use to regulate the surplus lines market — in exchange for allowing non-admitted carriers to write business in their state without full licensure, the state collects a tax on those premiums.

Surplus lines tax rates vary by state:

• • Most states: 2% to 3% of premium
• • Some states: up to 5% or 6%
• • A few states have tiered structures based on risk type

The tax is calculated on the net written premium and is typically collected by the surplus lines broker and remitted to the state on the policyholder's behalf.

Important: Surplus lines taxes are not optional and are not negotiable. Every E&S policy placed in a given state is subject to that state's tax rate. Any broker who quotes an E&S policy without disclosing the applicable surplus lines tax is not giving you a complete picture of cost.

Stamping Fees

Many states have a surplus lines stamping office — an industry-funded oversight organization that reviews surplus lines filings. When a surplus lines policy is filed with the stamping office, a stamping fee is assessed.

Stamping fees are typically small — often 0.10% to 0.20% of premium — but they add to the total cost. Not all states have stamping offices, and fees vary where they do exist.

Diligent Search Requirements

Before a surplus lines policy can be placed, most states require the broker to conduct a "diligent search" of the admitted market. This means demonstrating that the risk was offered to admitted carriers and they declined or couldn't provide the coverage needed.

In practice, diligent search requirements vary significantly by state:

• • Some states require three or more admitted carrier declinations in writing
• • Other states allow the broker to certify that the admitted market doesn't write the class of risk
• • Some states have "export lists" — classes of business that can be placed in the E&S market without diligent search because admitted markets are known to be unavailable

An experienced surplus lines broker knows which diligent search documentation is required in each state and handles this process on your behalf.

Surplus Lines Affidavit

After placing a surplus lines policy, the broker must file a surplus lines affidavit with the state. This document certifies that the diligent search was conducted, identifies the carrier, and provides policy and premium information.

The affidavit filing is the mechanism by which surplus lines taxes are tracked and collected. It's an administrative requirement on the broker, not the policyholder, but it's worth understanding as it's part of why E&S policies take slightly longer to finalize than standard admitted policies.

Multi-State Risks

When a risk spans multiple states — a contractor who works in five states, for example — surplus lines tax allocation gets complicated. Premium must be allocated by state, and each state's applicable tax rate applies to its portion of premium.

The Nonadmitted and Reinsurance Reform Act (NRRA) of 2010 simplified this somewhat: for individual (non-commercial) insureds, only the policyholder's home state tax applies. For commercial risks, the allocation rules can still be complex.

What This Means for Your Total Cost

To estimate the true cost of E&S coverage, add to the quoted premium:

• • Surplus lines tax (2-6% depending on state — your broker should disclose this)
• • Stamping fee (if applicable — typically 0.1-0.2%)
• • Any broker fees (surplus lines brokers may charge service fees in addition to commission)

A $10,000 premium in a 3% surplus lines tax state with a 0.15% stamping fee results in $315 in taxes and fees on top of the premium — not a lot, but worth knowing.

For large commercial programs with premiums in the six or seven figures, the surplus lines tax becomes a meaningful line item that should be factored into budget planning.

Working With a Transparent Broker

A competent E&S broker will disclose all surplus lines taxes and fees upfront on every quote. If you receive an E&S quote without a clear breakdown of taxes and fees, ask — you're entitled to know the full cost before binding coverage.

At E&S Insurance Specialists, we provide full cost disclosure on every quote. Call 844-967-5247 or submit your risk online to get started.