Admitted Insurance Companies vs Non-Admitted Insurance Companies
AdmittedAdmitted carriers are licensed and governed by the laws of the state they are in, and their rates and forms (coverages) are reviewed and approved by that state. This is very good because each states insurance department is charged with protecting the interests of the consumer. They review the rating to make sure there is no price gouging, and they review the coverages (forms) to make sure there are no egregious exclusions on the policy being sold.
Also, Admitted carriers are protected by their state guarantee fund (if one exists). Here in NY , the state agrees to back up an admitted carrier in the event that carrier becomes insolvent and is unable to pay claims.
Non admitted
Non-admitted carriers on the other hand are not protected by any state guaranty funds. They also are free of rate and form. They can, in effect charge any price they want, and can provide any coverage or exclusion they want, leaving it to the carrier and insured to negotiate terms of coverage, typically through a broker. This may seem initially very bad on the surface, however non-admitted carriers exist for a very specific purpose.
Example #1
If there is a sudden spike in arson related apartment building fires, insurance companies who write on admitted paper only have two choices: Keep writing policies at a loss, or stop writing the class altogether while they wait for a rate change approval from the State department of insurance, which can take many months. Non-Admitted carriers can step in, increase the pricing to a level that will allow them to continue writing the class profitably. While no one likes higehr insurance premiums, this is certainly better than leaving the building owner uninsured.
Example #2
Your particular set of buildings keeps experiencing water damage claims & all admitted carriers choose not to offer coverage. They can not exclude water damage, and they cannot charge enough rate to operate your policy profitably. A nonadmitted carrier offers you a competitive rate, with a standard deductible of $1,000, and then adds a Water Damage Deductible of $25,000. While you dont like such a high deductible, you can see the sense of the carriers offer, it keeps your premium down, and is this offer is again better than no coverage at all.
The ability to offer a custom made policy is very useful to risks that are hazardous or have experienced a bad claims history. Nonadmitted policies are not designed for the lay person. They exist to address specific needs of special classes of business that are having problems in one form or another.
Solvency Concerns
Some insureds are fearful of doing business with nonadmitted carriers due to insolvency concerns as described above. While this fear is reasonable, it should and can be managed and planned for. In addition to being admitted or non admitted, carriers are also given ratings of their financial strength. There are plenty of carriers that are admitted that have a B (or worse) financial rating. I would probably not reccomend my client buy such a policy. Alterntaively there are many non-admitted companies that can provide financials that position them as A-XV and better. These companies are very strong and the likelihood of their failure is very small.
Find a reputable, knowledgable broker who can help you navigate the many types of carrier policies available and you may be suprised at what you find.
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Jonathan S. Carroll, ASLI, CRIS
Bradley & Parker
320 S. Service Rd, Melville, NY 11747
O - (631) 981-7600
D - (631) 650-4034
C - (917) 376-0075
F - (631) 981-7681
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