In order to reduce the risk of insulation failure to an economically and operationally acceptable level, the insulation withstand and clearances for substation equipment is selected with regard to anticipated overvoltages; taking into account the expected protective characteristics of nearby surge arresters in the station. Insulation coordination standards further recognize that, since the primary function of a surge arrester is to limit, and thereby render harmless, overvoltages to which the protected equipment is exposed, the arrester's own insulation is obviously the best protected of all. In contrast to other HV apparatus, the insulation level for surge arresters therefore does not need to fulfil a standardized insulation class since the arrester will effectively protect its own insulation against overvoltages. An intensive review of the surge arrester standard IEC 60099-4 resulted in the release of Edition 3.0 during 2014. Amongst other matters, this introduced a new procedure for verifying the dielectric withstand of the external insulation on an arrester. Equations were defined which consider the relationship between dry arcing distances and withstand voltages and thereafter the need to perform a specific insulation withstand test or not. For arresters intended for use on systems of Us > 245 kV, lightning and switching impulse voltage tests on complete arrester assemblies based on the arrester's protective level can be especially defining. During the tests the nonlinear metal-oxide (MO) resistors are replaced by linear resistors, capacitors or high gradient MO resistors in order to achieve the supposed voltage distribution along the arrester during impulses. The MO resistor distribution within a multi-unit arrester as well as the grading ring configuration used may impact the withstand voltage of the arrester, and arresters with similar appearance or with the same arcing distance can potentially perform differently. This paper discusses the requirements for insulation withstand on surge arrester housings and evaluates the role voltage grading plays on arrester performance, both during dielectric testing and normal operation.