When choosing an insurance provider, understanding the difference between admitted and non-admitted insurance companies can help businesses and individuals make more informed decisions.
These terms refer to how insurance companies are licensed and regulated by the state, and those differences can affect everything from policy options to financial protection.
What is an admitted insurance carrier?
Admitted insurance companies, also known as admitted carriers or insurers, are licensed and regulated by their state’s Department of Insurance. They offer coverage that meets standard requirements and they’re typically used for common personal or business insurance needs.
Admitted carriers must follow state rules when designing policies, setting rates and handling claims, and this oversight can help provide a layer of protection for individuals, families and businesses who buy coverage.
Pros and Cons of Admitted Insurance
A notable advantage of admitted carriers is the financial protection provided by the state’s guaranty fund, which is a type of financial backup managed by the state. In the unfortunate event that an admitted insurance company becomes insolvent and cannot pay its claims, the guaranty fund may step in to help cover claim payments – up to certain limits – so policyholders aren’t left unprotected.
However, because admitted carriers must follow state guidelines, they may not offer the flexibility to tailor policies to meet more complex or unusual risks. For example, businesses with specialized operations or individuals with high-value assets in difficult-to-insure locations may find that coverage through an admitted carrier would not meet their needs.
What is a non-admitted insurance carrier?
A non-admitted carrier is not licensed by the state and does not follow the same regulatory guidelines as an admitted carrier. While these insurers are legal and may be financially sound, they operate outside of the state’s standard approval process and typically sell policies through surplus lines or wholesale insurance brokers rather than directly to consumers.
Non-admitted carriers may be used when admitted insurers can’t or won’t provide coverage. Non-admitted carriers have a greater degree of flexibility to design custom policies and can price them accordingly, which can be especially helpful for those with needs that fall outside the standard insurance market, such as high-value properties in disaster-prone areas, specialized business operations or unique liability exposures.
Since non-admitted carriers typically do not sell policies to consumers directly, individuals and businesses can work with a licensed insurance broker to obtain access. A broker can identify your coverage needs and access wholesale insurance markets to help secure coverage through a non-admitted carrier.
Pros and Cons of Non-Admitted Carriers
While non-admitted insurers can offer a greater degree of flexibility, this does come with some trade-offs. Perhaps most notably, non-admitted carriers are not backed by the state’s guaranty fund. This means that if the insurer fails or becomes insolvent, there is no state-run safety net to help pay outstanding claims, so you could be left paying out of pocket.
Policyholders also do not have the option to appeal to the state for issues with non-admitted carriers. In most cases, disputes or claims must be resolved directly with the insurer without state consumer protection.
Additionally, non-admitted insurance policies often add surplus lines taxes and stamping fees that are not present with policies with admitted insurance carriers.
Financial Stability and AM Best Ratings
Financial stability is an important factor to take into account when choosing an insurance provider. Ratings from agencies like AM Best assess an insurer’s ability to meet their financial obligations and pay claims.
AM Best uses a rating system from A++ to D, with an A rating indicating that a carrier has an excellent ability to meet their ongoing obligations. There are also non-rating designations, such as F to indicate a carrier is in liquidation or NR to indicate that a carrier is not rated.
Need help securing insurance coverage?
Higginbotham understands the complexities of choosing the right insurance for your situation. As a brokerage offering HR services, employee benefits, business insurance, financial services and personal insurance, we have the expertise to identify your needs and find solutions that fit them. Talk to one of our specialists to learn more.
