Standard vs Excess and Surplus Insurers in Texas
By
Houston Home Insurance
Standard or Excess and Surplus Insurers, Will Yours Be There After the Storm?
A cheaper quote is not always a worse policy, and it is not always a safe one. Here is the test I run before I trust a carrier with your home.
By Charles McDade, LUTCF, founder of McDade Insurance Brokerage Group
I get asked all the time why one company is hundreds of dollars cheaper than the rest. Sometimes it is a great deal, a solid carrier that simply wants your business and prices your home well. And sometimes it is a company that may not be there when you actually file a claim. Telling those two apart is most of my job, and this is one of the frameworks I teach on our guide to what carriers are quietly changing.
When a retiree asks me whether the cheaper company is safe, I take that seriously. They are not asking for a sales pitch. They are asking whether the promise behind the policy will still be there after the storm.
This is not a story about cheap being bad. It is about risk tolerance and whether you are comfortable with volatility. So let me give you the test I run on any carrier before I trust it with a family's home, and the cautionary tale that explains why it matters so much right now.
What is the difference between a standard and an excess and surplus home insurer?
A standard, admitted carrier is licensed by the Texas Department of Insurance and backed by the Texas guaranty association if it ever fails. A non admitted, or excess and surplus, carrier is not, and it is often a newer or specialty company filling a gap the standard market will not touch.
Which one is right for you depends on your tolerance for volatility, and the way to decide is a simple three part test. Is the company admitted, what is its AM Best rating, and what is its track record after past storms.
The Carrier Strength Test, three questions before the quote
Before you let a premium decide, run the company through three questions. The first is whether it is admitted. An admitted carrier is licensed in Texas and is a member of the Texas Property and Casualty Insurance Guaranty Association, which steps in if the company becomes insolvent. A non admitted surplus lines carrier is not, so if it fails there is no guaranty fund behind your claim, only a court appointed receiver and whatever money is left.
Here is the part most people never hear. Even the guaranty fund has limits. It covers home, auto, and workers compensation from insolvent admitted carriers, but the cap is currently 300,000 dollars or your policy limits, whichever is less, and payments can be slow. On a larger Houston home, that backstop may not cover the whole loss, which is exactly why the goal is to pick a company that will not fail in the first place, not to rely on the safety net.
The second question is the AM Best rating, which measures a company's financial strength and its ability to pay claims. The third is the track record, how long the company has operated and how it actually paid after past storms. A strong answer to all three is worth far more than a small discount.
What the Demotech story should teach every Texas homeowner
To see what happens when a market skips this test, look at Florida. Researchers at Columbia, Harvard, and the Federal Reserve studied the Florida market and found that more than 60 percent of insurers there carried a rating from a single firm, Demotech, that almost all of those ratings were an A or above, and that close to 20 percent of those A rated companies still became insolvent between 2009 and 2022. Over the same years, none of the long established traditional carriers in their data failed.
The pattern is the one that worries me. A wave of newer, lightly capitalized carriers grew fast for a few years on attractive prices, and then several went insolvent after the hurricanes, leaving homeowners scrambling mid claim. The takeaway is not that one letter grade is worthless, it is that a letter grade alone is not enough. You have to look past it to the company's capital, its reinsurance, and how it has paid when the wind actually blew. That is the difference between a number on paper and a company that is still standing on your worst day.
So which should you choose
This is a decision, not a rule, and it comes down to your own tolerance for volatility. For many families, paying a little more for an experienced, well capitalized, admitted carrier with a correctly written contract is worth it precisely because it lets them stop worrying. For others, a surplus lines carrier is the right tool or the only option, for a hard to place home or for wind coverage in some coastal areas east of Highway 146, and that can be perfectly fine when you go in with eyes open. Our Texas Windstorm guide covers that coastal piece.
One quiet lever helps here. Bundling your home and auto often unlocks the higher tier carriers that pass this test, which is its own decision worth reading in our guide on whether bundling is worth it, and it pairs naturally with the paid off home playbook if your mortgage is gone. The way I think about it comes from the financial world. Experience and capital, when the contract is written correctly, insulate you from the storm. That is the whole job here. Because we shop the 50+ top Texas carriers we know well, we can run the Carrier Strength Test with you, weigh a cheaper quote honestly against the company behind it, and help you decide what to keep, switch, or accept. About 40 percent of the time we tell a family their current carrier is already the right one and to leave it alone. We are insurance brokers and not financial advisors, so think of this as how to read the company, not advice on your investments.
Standard versus excess and surplus, common questions
What is the difference between an admitted and a non admitted insurance company?
An admitted carrier is licensed by the Texas Department of Insurance and backed by the Texas guaranty association if it becomes insolvent. A non admitted, or surplus lines, carrier is not licensed the same way and is not protected by that fund, so if it fails you are left filing with a court appointed receiver for whatever is left. Surplus lines carriers are often newer or specialty companies, and they fill real gaps, but they carry more volatility.
Does the Texas guaranty association protect me if my insurer goes bankrupt?
Only if your carrier is admitted, and only up to a limit. The Texas Property and Casualty Insurance Guaranty Association covers home, auto, and workers compensation policies from insolvent admitted carriers, with a statutory cap that is currently 300,000 dollars or your policy limits, whichever is less, and claims can be delayed. It does not cover surplus lines carriers at all. On a larger home loss even the admitted backstop may not cover everything, which is why picking a strong carrier matters more than counting on the fund.
What does the Demotech insurance story teach Texas homeowners?
It shows what happens when a market leans on price and a single rating. In Florida, researchers found that more than 60 percent of insurers carried a Demotech rating, that almost all of those ratings were an A or above, and that close to 20 percent of those companies became insolvent even while holding an A rating, while none of the long established carriers failed in the same period. Several grew fast for a few years, then went under after the hurricanes. The lesson is to look past the letter grade to the company's capital and track record.
Is a cheaper insurance quote always a worse policy?
No, and that is the point of shopping. Sometimes a lower quote is simply a carrier that wants your business and prices your home well. Other times it hides a thinner roof settlement, a higher deductible, or a lightly capitalized company that may struggle to pay after a major storm. The job is to compare what the policy pays and who stands behind it, not just the premium, and then decide what trade you are comfortable with.
Are excess and surplus insurers ever the right choice?
Yes. For a hard to place home, or for wind coverage in some coastal areas, a surplus lines carrier may be the right tool or the only option. The key is to go in with eyes open, understand that the guaranty fund does not back it, ask about the company's financial strength, and make sure the contract is written correctly. It comes down to your own tolerance for volatility.
How do I check if my insurance company is financially strong?
Ask three questions. Is it admitted in Texas and backed by the guaranty association. What is its AM Best rating, which measures its ability to pay claims. And how long has it operated and how did it pay after past storms. A broker who works with the 50+ top Texas carriers we know well can run that check with you and match your home to a company that fits both your budget and your risk tolerance.
Keep going
The pillar this guide belongs to, with all five frameworks for reading your policy.
How Texas home coverage works, and how we match your home to the right carrier.
The coastal wind picture, including where surplus lines carriers come into play.
Let us run the Carrier Strength Test across the 50+ top Texas carriers we know well.
About the author
Charles McDade, LUTCF, is the founder of McDade Insurance Brokerage Group and a board member of the Independent Insurance Agents of Houston. He started his insurance career at Liberty Mutual, where over six years he became a top personal lines producer, selling auto, home, and life across the Houston area, before opening his own independent agency in 2020. Because he reads these contracts and shops the market for so many Houston families, he knows which carriers actually stand behind a policy when a storm hits. McDade Insurance was recognized as a Travelers S.T.A.R Agency for 2026.
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