When you shop for insurance, you need to understand the difference between an admitted and non-admitted insurance carrier. The terms admitted and non admitted refer to whether a company qualifies for state backing similar to that which the Federal Deposit Insurance Corporation (FDIC) provides for banks. You and your clients are safer purchasing insurance at admitted companies. Here's why.
When you do business with an admitted insurance company, you do business with a firm that the state insurance department approved. That means the company met the criteria set forth by the insurance department. Conversely, a non-admitted insurance firm does not qualify for state backing. These non-admitted carriers also get referred to as excess and surplus insurance carriers, E&S carriers, and surplus lines insurance. Some states amass information on these firms through a state surplus lines office.
How a Firm Qualifies for Admitted Status
Becoming an admitted insurance company requires that the firm meet all state regulations set by the insurance department. The company proves this compliance through documentation and inspection. This typically involves the state's insurance commissioners or the state's insurance department or division. While the insurance industry does have a national industry organization, the National Association of Insurance Commissioners, the process of gaining admitted status is a legal one, conducted through each state government. It does not apply to individual insurance agents, but to a company that underwrites the policies.
Benefits of Using Admitted Insurance Carriers
Admitted status provides numerous benefits from being approved by the state. If the insurance company becomes insolvent, the state intercedes to fulfill claims payments through the state guaranty funds. There is no such backing for a non-admitted insurance firm, so in cases of insolvency, the firm's clients have no guarantee claims will be paid through the states guaranty fund or other means.
Doing business with admitted agencies protects you and your clients in a second way. If a firm mishandles a policy decision or does not pay claims, they can appeal it to the state insurance department, but this is not so with a non-admitted company. Their policyholders have no appeals protection from the state insurance department. For business owners, doing business with an admitted carrier provides three key benefits:
- You avoid certain fees and taxes when purchasing a policy since they aren't required from an admitted company.
- Guaranteed claims payment if the company fails.
- The ability to appeal a claims decision
Benefits of Using a Non-Admitted Company
In certain cases though, businesses may have to purchase a policy because it faces risk levels that the standard insurance market will not cover. This is where they pick up their market share. For example, businesses along the lower East Coast and Gulf Coast find it challenging obtaining hurricane damage coverage. The non-admitted insurer carrier can do that because the state rules for underwriting criteria, rate setting, and coverage do not apply to them. The following types of insurance typify those in which surplus lines insurers provide insurance coverage:
- homeowners insurance in high-risk areas with frequent claims due to earthquake, hurricane, tornado, and wildfires,
- professional liability insurance and homeowners insurance for high-value homes,
- hard to insure individuals who have filed many claims or have a bad track record with other insurance companies,
- an insurance product accessible to non-US citizens,
- long-term care policies or other supplemental health policies.
If you can do business with an admitted insurance carrier, you can save money and protect yourself in case the carrier goes out of business since the state guaranty fund will pay outstanding claims. If you require unusual insurance products, business insurance, or insurance in a high-risk situation though, you may need a non-admitted insurance carrier that can provide greater flexibility.
Choose wisely by paying close attention to the letter grades rating set by A.M. Best, a major credit rating firm. Avoid any carrier with a grade of C or lower. The rating firm grades the entire insurers market which includes both admitted and non-admitted.
You can still get dependable coverage from a non-admitted insurance carrier when you shop carefully. Contact your state's department of insurance or state surplus lines offices to find non-admitted agencies that provide the type of insurance you require. You can find financially stable companies among those with non-admitted status in your state insurers market. We can help you obtain the insurance your business needs from a dependable carrier. Contact us today to get started.