How important is it when choosing an insurance carrier that they be admitted (standard market) vs. non-admitted (excess or surplus lines)? Although it may be important, it may not be as important as choosing an insurance company with financial stability. For example, an admitted company with an A.M. Best rating of C may be more of a risk than a non-admitted carrier with a higher A.M. Best rating. Typically, insurance will not be placed with a non-admitted carrier unless it has been declined by admitted carriers (the agent is required to do their due diligence in seeking a standard market if possible.) Non-admitted carriers come into play as there are certainly those cases in which a non-admitted carrier is your only option. Continue reading below to better understand these two markets.
- Definition – To become an admitted carrier there is a lengthy application process to complete that requires compliance with each state’s requirements, including forms and rates. You will find the majority of insurance policies to be admitted.
- Insolvency – In the event of insolvency, the carrier’s liabilities are backed by the state’s guaranty fund. Admitted carriers are required to pay into this fund. Even with the fund, insured’s often do not receive the true loss amount because the fund, depending on the state, will only provide a certain limit or cap of protection per policy, even if the policy had higher limits.
- Taxes & Fees – None
- Claims – Insureds have an option if they feel a claim has been handled improperly to appeal to the state of insurance department.
- Definition – Although regulated by the state’s Surplus Lines Office, the regulation is much less invasive, and they do not go through an approval process as the admitted carriers do. Insureds with specialty insurance needs, that are high risk, or have a claims frequency issues are those you will find to be with a non-admitted carrier, as the carriers have much greater flexibility since they are not bound by filed forms or rates.
- Insolvency – There is no financial backing with a non-admitted carrier by any state funds. When a non-admitted carrier goes insolvent, the remaining assets of the company are collected, and all the outstanding liabilities/credits are determined. A plan is then developed to distribute the assets, and that plan goes to the court for approval. Insureds are often left to fund claim payments themselves before they can attempt to request/collect any reimbursement, if any is available.
- Taxes & Fees – Yes (varies by state)
- Claims – There is no option for appealing a claim you believe was mishandled.