There two different types of insurance carriers in the U.S., admitted and non-admitted. If you are not aware of their differences, here is a quick comparison between the two; admitted insurance carriers are companies approved by a state insurance department and licensed to sell policies while non-admitted insurance carriers are insurance companies that are not licensed by the state to provide insurance. Nevertheless, a non-admitted insurance carrier can still operate in the states or countries through the state-authorized agencies or brokers.
Let’s look deeper into the distinctions between admitted and non-admitted insurance carriers.
The benefit of insurance companies being admitted by a state insurance department is that it is backed up by the state if it fails financially. The state’s guaranty fund will cover the payment of the claims the admitted insurer cannot handle due to a financial failure. As part of this agreement, the admitted insurance companies will operate in compliance with the regulations of the Department of Insurance of the state for the underwriting, rate setting and coverage. Admitted carriers file their rates and forms with the state’s insurance department for the department’s approval.
When owners of small businesses purchase insurance from an admitted insurance carrier, it gives them the understanding that they are covered in the event their insurance company fails financially, Admitted insurers are often referred to as “standard market carriers.”
The most common distinction of non-admitted insurers is that they do not have the financial support of the state’s insurance guaranty fund that is offered to admitted insurance carriers. That doesn’t mean that non-admitted insurance carriers are not stable enough to pay all their claims in full. Non-admitted carriers do not file rates and forms to be approved by the various states’ insurance departments. They are approved to do business in a state, but they do not receive the benefit of the state’s guaranty fund in the event of a financial problem with the insurer. Non-admitted carriers are often referred to as “excess and surplus lines carriers.”
In contrast to the admitted insurance companies non-admitted companies have more flexibility in pricing and coverage since their rates and forms are not filed with the states. Non-admitted insurance companies have the ability to often provide coverage to insureds that have less than favorable loss experience or risk classifications that may not be attractive to admitted insurance carriers. The non-admitted insurers have the ability to price an account and create coverage outside of the constraints of filed rates and forms. It is not unusual to find non-admitted insurers to provide coverage for “high hazard” exposures either from an operational, or high valued exposure standpoint or professional liability insurance.
Which is Better for Your Small Business, Admitted or Non-Admitted Insurance?
As a small business owner, you may rely on your agent to help determine when it is appropriate to use an admitted or non-admitted insurance company. Just because a company is non-admitted does not mean that they are substandard. They fill a need, in many cases, where admitted carriers have chosen not to provide coverage for a variety of reasons. Perhaps admitted companies do not feel that they can develop adequate premiums to provide coverage based on state rates. Possibly admitted companies have chosen not to offer coverage to certain types of accounts based on their type of business or overall loss experience. In either case, a non-admitted company can develop pricing that makes sense and they can also use specially crafted coverage to best address the exposures presented by a particular business.
Both the admitted and non-admitted insurance carriers target specific, but different markets. Therefore, there may be certain insurance coverage that cannot be purchased from an admitted insurance company, but a non-admitted insurance company offers, or vice versa. Your priority should always be to have a high-quality insurance provider, whether be it an admitted insurance carrier or non-admitted carrier.
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