What is the Difference between an Admitted and Non-Admitted Insurance Company?
If you’re shopping for business insurance, especially if you’re looking for what I’d call specialty insurance like E&O, D&O, or Cyber insurance, or looking for insurance that may be difficult to place, you may see quotes from non-admitted insurers and wonder what does non-admitted insurance mean?
To answer that, let’s look at what an admitted insurance company is or means.
An admitted insurer is licensed and approved by the state in which you’re purchasing coverage. The insurance company conforms and follows the rules of the governing insurance authority of the state, and the state authority approves the policy forms and rates the insurer uses. Finally, and maybe most importantly, the insurer participates in the state’s guaranty fund, meaning that the insurance company will fund all of that insurer’s claims obligations if they become insolvent.
On the flip side, a non-admitted insurer, commonly called an E&S or Excess and Surplus insurer is not licensed or approved by the insurance authority of your state. The state does not approve their policy forms and rates, and non-admitted insurers do not participate in the state’s guaranty funds.
Is an Admitted Insurer better than a Non-Admitted Insurer?
Not necessarily. Earlier in my career, that may have been true, or maybe I was taught to think that way – but in the 80s, several large insurers did go bankrupt, so the importance of guaranty funds was critical back then. Today, we don’t see insurer insolvency as big of an issue.
I think the question of which is better – admitted or non-admitted really can’t be answered – it really depends on the situation, and here’s why.
Non-admitted insurers can provide a higher degree of flexibility in their policy offering – from how the policy is written, what coverages are provided and what’s not provided, and their pricing. Non-admitted insurers are not stuck inside an underwriting or pricing box that confines many admitted insurers. As I mentioned earlier, you’ll see many D&O, E&O, and cyber insurance policies written with non-admitted insurers because of the freedom of rate and rule that non-admitted insurers have. For example, we recently were able to customize policy language for a fund client to tailor it to their needs with a non-admitted insurer that would have been impossible to do with an admitted insurer.
Now there’s also a lot of business written for difficult-to-place accounts, such as some construction accounts, especially in New York, in the non-admitted or E&S marketplace. Without this market, many accounts would not be able to obtain insurance since the standard admitted marketplace will not or cannot write many of these firms. In addition to New York construction accounts, there are tons of other firms that will be insured in the non-admitted marketplace because the admitted market does not have the capacity or pricing flexibility to offer coverage. Commonly this will include higher liability risk firms and certain property accounts exposed to high wind, hurricane, earthquake, or wildfire risk.
You need to take an extra step of caution to read and understand proposals from non-admitted insurers and not assume that a similar policy from an admitted insurer would be the same. As mentioned, an E&S policy has much more freedom of rules, so these policies will contain limitations, exclusions, and endorsements you need to understand before signing on the dotted line. If you don’t understand it, ask your broker questions until you get a full picture of what you’re buying.
Here’s the bottom line, there are several factors when deciding on what insurance proposal to purchase. Coverages, exclusions, limitations, conditions, insurer financial strength, market conditions, and availability, and more.
Going it alone doesn’t make sense. You need a qualified broker to assist you in that decision and guide you to making the right choice for you and your situation. Often, you will be faced with options only from non-admitted insurers. That’s not necessarily a bad thing, but ask your broker the questions you need to be comfortable and secure in your buying decisions.
Not getting that level of support from your current insurance broker relationship?
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