What is 'capping' in the surplus lines market?

In the surplus lines market, 'capping' refers to the limits placed by insurers on the amount of risk they are willing to underwrite. This practice is essential for managing exposure and ensuring that insurers do not take on more risk than they can handle. By implementing caps, insurers can protect their financial stability and maintain healthy underwriting practices.

This approach is particularly relevant in the surplus lines market, which is designed to provide coverage for risks that standard insurers may consider too high or unusual. Because these risks are often more unpredictable, caps help ensure that insurers do not overextend themselves and can manage potential claims effectively. Overall, capping serves as a risk management strategy that helps maintain balance within the surplus lines industry.