There are times when the coverage you need is available exclusively from a non admitted carrier. What is the difference between admitted and non admitted carriers, and what are the advantages and disadvantages of each? Should you be concerned if a carrier is not admitted? Making the wrong choice, or an uninformed choice can cost!
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An admitted carrier is one that follows guidelines set forth by the state and is therefore licensed in the state or country in which the insured exposure is located. Of course, these guidelines vary from state to state, and some are more stringent than others. The obligation to follow state regulations and submit rates to a state’s department of insurance limits the flexibility of the insurer. If an admitted carrier becomes insolvent, the state guarantee fund steps in to pay out claims and premium remuneration where applicable.
It is a common misconception that non admitted is synonymous with non licensed. In reality, non admitted carriers do not have rates filed with the state and therefore are not as highly regulated, but this also means they are not protected by state funds. Because of this, they are sometimes able to offer better rates – these carriers can base price on specific exposures. Further, certain complex risks require the use of non admitted carriers because the conventional insurance marketplace fails to provide adequate coverage. However, in the case of insolvency, the state will not pay the carrier’s outstanding claims and premium remuneration.
Judging Financial Strength
Since with a non admitted carrier you are not guaranteed payout from the state in the case of insolvency, as you are with an admitted carrier, one of the most important things to consider when purchasing coverage through a non admitted carrier is its A.M. Best rating, which rates a carrier on financial strength and size based on policyholder reserves. As long as you are aware of market conditions and are sure the carrier is reputable, buying coverage from non admitted carriers can be beneficial in several ways: They often provide lower rates, absolute control over coverage terms and coverage unavailable through admitted carriers (including specialty risks, risks that are unusual or those that are unusually large).
It is important to note that nonadmitted does not mean that an insurer is not regulated – many states do regulate nonadmitted insurers. In fact, many nonadmitted carriers are actually admitted carriers in other states. Nonadmitted carriers intentionally opt out of filing rates with the state not necessarily because they are unable to comply, but because doing so provides the advantages mentioned above. On the other hand, just because a carrier is admitted doesn’t mean it is financially solvent. Because of state restrictions on rates and forms of coverage, admitted carriers’ payouts may increase faster than permitted premium increases in certain classes of business, leading to financial instability.
Therefore, when making your choice of insurer, you should not ask yourself only whether the carrier is admitted or nonadmitted, but rather whether it is financially capable of paying claims in the event of an accident.◊ In CA another issue is that you can not purchase insurance from a Non Admitted Company if an Admitted Company offers the coverage.
Insolvency is a real issue! As an example Legion Insurance Company was a large well run insurance company. After 9-11 their reinsurance company failed as did they. Clients that were insured with Legion on a non admitted basis had claims delayed, and mostly not paid. While Clients that were insured with Legions admitted side had the state guarantee fund coverage!
In CA today we see California Workers Compensation Companies in trouble. Most of the reform that drove rates down in 2006 has proven not to work. The system is broken, and we have started to see CA workers comp companies pull out of CA, and a few insolvencies. Self Insured Groups, SIGS for CA workers comp are very dangerous as they typically have "joint and several liability" clauses.