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Admitted vs. Nonadmitted Insurance Carriers - Differences Explained

Aug 23, 2023

At some point, every insurance retailer is faced with the decision of working with an admitted or non-admitted insurance carrier. If you’re going to serve your customers to the best of your ability, it’s a good idea to know the difference between the two, as well as the characteristics of each that can affect the quality of coverage. Here, we will explain all the important differences, benefits, and drawbacks of each.

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Admitted Insurance Carriers

One of the main types of insurance carriers is an admitted insurance carrier. Also known as "authorized insurers," admitted carriers have been approved by a state’s regulatory authority to conduct business within that particular state.

What is Admitted Insurance?

Admitted insurance can be defined as insurance coverage that’s offered by providers that meet the requirements and regulations set by the state Department of Insurance (DOI) in the area they operate in. There are several benefits and advantages to admitted insurance, and a few drawbacks, as outlined below. 

BENEFITS OF ADMITTED INSURANCE CARRIERS 

REGULATORY COMPLIANCE

An admitted insurance carrier is in compliance with all of the necessary state regulations. This means they meet specific operational and financial requirements that pertain to capitalization requirements, rate approvals, policy forms, and claims handling.

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FINANCIAL STABILITY

Admitted carriers are often seen as being more financially stable because they are required to meet certain financial standards and consistently maintain adequate reserves to cover potential claims. Most states also have guaranty funds available to protect policyholders in cases of insolvency. This financial stability is one of the things that attracts many prospective policyholders.

COVERAGE AVAILABILITY

Having access to a wider range of insurance products and coverage options is another benefit of admitted insurance carriers. Some of the reasons admitted carriers may be able to offer greater coverage availability include the need for regulatory approval, greater access to state markets, industry experience, and the presence of state guaranty funds.

AFFORDABILITY

In many cases, admitted insurance products are less costly to the end user. This means customers can often avoid paying certain taxes and other fees associated with certain insurance products. Greater competition within a certain state may also result in more competitive rates being offered.

DRAWBACKS OF ADMITTED INSURANCE CARRIERS

LIMITED FLEXIBILITY IN COVERAGE OPTIONS

Admitted carriers may face limitations and constraints due to the regulatory compliance requirements they must follow. This can affect the flexibility of their coverage options because of restrictions on providing innovative or non-traditional types of policies. Policy language standardization is another thing that can limit a carrier's ability to customize policy terms for unique situations or specific needs.

SLOWER UNDERWRITING PROCESS

Time is always of the essence when it comes to insurance underwriting, and a slower process can have a negative effect. The biggest issue with a slow underwriting process is that policyholders have to wait longer to receive compensation for their claims, which may increase their financial burden. Slow underwriting also increases the potential for frustration and customer dissatisfaction and may lead to escalated disputes and increased administrative costs for insurance companies.

NON-ADMITTED INSURANCE CARRIERS

Non-admitted insurance carriers are also called “surplus lines insurers,” and unlike admitted carriers, they are not licensed or regulated by the state in which they operate. Non-admitted insurers operate outside the state’s admitted insurance market and often provide coverage that’s considered too risky for traditional carriers to underwrite.

WHAT IS NON-ADMITTED INSURANCE?

Non-admitted insurance refers to insurance that is not subject to the regulations set forth by the state Department of Insurance (DOI) in the area where it does business. Non-admitted insurance has features and characteristics that make it more attractive to some customers, but it can also carry risks when compared to admitted insurance.

BENEFITS OF NON-ADMITTED INSURANCE CARRIERS

FLEXIBLE COVERAGE OPTIONS

Sometimes, people need insurance options that are more flexible than what you typically find from admitted insurance carriers. Non-admitted insurance often offers greater flexibility when it comes to coverage options, allowing you to service customers that may have more diverse insurance needs.

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ABILITY TO COVER HIGH-RISK OR UNIQUE EXPOSURES

The ability to provide coverage for unique and high-risk situations that may not be available from admitted insurance companies is one of the primary benefits of non-admitted insurance. Some examples of high-risk situations include risks associated with extreme weather or disaster-prone areas, high-value properties that might have unique features, or situations that have environmental liability.

DRAWBACKS OF NON-ADMITTED INSURANCE CARRIERS


HIGHER PREMIUMS AND DEDUCTIBLES

The fact that non-admitted insurance does not follow standard government compliance means higher premiums and deductibles most of the time. Higher fees are also common in situations of higher risk and unique exposure. Many potential customers find the higher premiums and deductibles associated with non-admitted insurance to be more than they’re willing to pay. Additionally, when a non-admitted insurance carrier underwrites policies that fall outside of excess and surplus lines, you might have to pay additional taxes and premiums depending on the state you’re in.

LIMITED CONSUMER PROTECTIONS

Most policyholders like the idea of being protected regardless of what happens with their insurer, and this is often an issue when it comes to non-admitted insurance. Non-admitted carriers may not have the same level of protection provided by state guaranty funds if they become insolvent, which could lead to major financial issues for the customer.

DEBUNKING MYTHS: RELIABILITY OF NON-ADMITTED INSURANCE CARRIERS

ARE NON-ADMITTED INSURANCE CARRIERS MORE RISKY?

myth vs factIt's easy to assume that a non-admitted insurance carrier is riskier than an admitted insurance carrier, but that's not always the case. The solvency of an insurance carrier has nothing to do with its status as admitted or non-admitted. Many non-admitted carriers are just as financially stable as admitted carriers, and many are even more stable.

FACTORS TO CONSIDER IN EVALUATING CARRIER RELIABILITY

Determining the reliability of an insurance carrier goes far beyond its status as admitted or non-admitted. Some of the important factors to consider include the carrier's financial strength ratings, its reputation for handling claims promptly and fairly, its overall size and market presence, how many years it's been in business, complaint ratios, the variety of products offered, and its customer service reputation.

CHOOSING BETWEEN ADMITTED AND NON-ADMITTED CARRIERS

ASSESSING CLIENT NEEDS AND RISK PROFILE

Assessing the needs and risk profile of the client is an important aspect of deciding between an admitted and non-admitted insurance carrier. This includes gathering all pertinent information for insurance purposes and identifying and evaluating the potential risks and exposures the client might face, both personally and in their business life. Through this analysis, it’s possible to identify specific needs that are related to their unique situation.

REGULATORY REQUIREMENTS AND COMPLIANCE

Since serving clients is what it’s all about, determining the level of regulatory compliance required to provide the right coverage is crucial. Situations can vary from jurisdiction to jurisdiction, and it’s important to weigh all of the pros and cons before making a decision on which type of carrier to use. Non-admitted carriers typically don’t follow the standard government compliance requirements, which could influence your choice.  

EVALUATING CARRIER REPUTATION AND FINANCIAL STRENGTH

To evaluate a carrier’s reputation and financial strength, checking independent ratings from reputable rating agencies goes a long way. You’ll want high ratings and solid customer reviews to let you know if this carrier has what you need. A company’s financial reports will also give clues about its financial stability. You can also visit your state’s insurance department website to see if there have been any complaints or enforcement actions against a particular carrier.

MAKING INFORMED DECISIONS FOR INSURANCE PLACEMENT

To recap, admitted insurance carriers are also called “authorized insurers,” and they have been approved by the regulatory authority of the state they operate in to do business in that state. A non-admitted carrier, or “surplus line insurer,” is not regulated or licensed by the state they operate in.

KEY TAKEAWAYS FOR INSURANCE RETAIL AGENTS

Retail agents need to understand the differences between these two types of insurance carriers before making a decision on which one to utilize. Key points to remember include:

  • Admitted carriers are in state regulatory compliance
  • Non-admitted carriers are not in state regulatory compliance
  • Each type of carrier has its own pros and cons to weigh before making a decision
  • Non-admitted carriers can be just as financially stable as admitted carriers

 

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.