v. Non-Admitted Carriers
Admitted v. Non-admitted - What is the Difference?
When receiving a carrier's quote, inevitably the question is asked "is
it admitted or non-admitted?" We always ask it, but do we really understand
what the differences are between admitted and non-admitted carriers? And do
we know what happens when admitted v. non-admitted carriers go into liquidation?
And most importantly, what should the client know? The designation of an insurance
company by a state's Insurance Commissioner as "admitted" may seem
to give the company a stamp of authority, however, this designation is primarily
an administrative one rather than a mark of quality or stability. As you may
be aware, many large insurers have admitted and non-admitted companies, as well
as subsidiaries. So...let's take a close look at what admitted v. non-admitted
What is an "Admitted" Insurance Company?
- An admitted carrier
is often referred to as a "standard market carrier." In order to qualify
as an admitted carrier, an insurance company must file an application with each
state's insurance commissioner and be approved. Approval as an admitted carrier
requires compliance with a state's insurance requirements, including the filing
and approval of that company's forms and rates. This process often takes a long
time as the state insurance commissioner has to review the company's financials,
rating model and policy form(s) before the commissioner would be in a position
to provide their apporval.
Once a carrier is licensed to transact insurance business in a certain state,
the carrier is required to pay a portion of their income into the insurance
guaranty association of that state. The admitted carrier's liabilities are backed
by the state's "guaranty fund." This means that in the event that
an admitted company becomes insolvent or "belly up", the state will
use money from that state's guaranty fund to help pay off policyholders' claims.
What is a "Non-Admitted" Insurance Company?
- A non-admitted
carrier is often referred to as an "excess and surplus line carrier"
and operates in a state without going through the submission and approval process
required for admitted companies. Non-admitted carriers are not bound by filed
forms or rates, and therefore have much greater flexibility to write and design
policies to cover unique and specific risks, and to adjust their premiums accordingly.
When standard markets can't or won't write a risk, or if an admitted insurance
carrier cannot offer the appropriate terms, the non-admitted market is available
to fill this gap. Non-admitted insurance carriers are regulated by the state
Surplus Lines Offices. The most obvious difference between admitted and non-admitted
is that purchasers of non-admitted policies do NOT have the protection afforded
by the state's guaranty fund. It is important to note that the designation as
"non-admitted" does not mean and should not been taken as an indication
that these insurance carriers aren't legitimate or financially stable. Non-admitted
DOES NOT mean non-regulated. In fact, in order to sell surplus lines insurance,
non-admitted insurance companies have to set aside a large monetary reserve
or secure adequate re-insurance to make up for the fact that they are not protected
by the state's guaranty fund.
- The choice between admitted and non-admitted insurance
companies is something that needs to be considered, however, examining the financial
strength of the individual providers, the breadth of coverage and competitiveness
of terms, rather than their status as admitted or non-admitted, are the most
important factors for comparison. While your ultimate choice of an insurance
company may be restricted based on the type of insurance you need, the priority
should always be to seek a high-quality provider, regardless of wether the company
is admitted or non-admitted.