Admitted vs Non-Admitted Insurance

Thursday, April 11, 2013

Insurance companies can be classified as admitted or non-admitted. The distinction resides in the insurer’s way of doing business in a particular state. Regardless of admitted or non-admitted status, every insurance company including errors and omissions insurance companies must be licensed and approved in any given state(s) where it conducts business.

Non-admitted insurers are able to operate with less state oversight and regulatory restrictions. Many of the best insurance companies in the world operate as non-admitted insurers. AIG, Zurich, Lloyds, and hundreds of other fine insurance companies are non-admitted carriers. Status as a non-admitted insurer does not mean sub-standard. Non-admitted carriers can often continue coverage in extreme circumstances where admitted carriers can’t. Most professional liability (E&O) policies are written on a non-admitted basis.

Admitted insurers operate under tighter state regulation and are under more state scrutiny. They must file all forms and policies with the regulators in each state. Most “standard” insurance policies such as home and auto are admitted. Admitted carriers are protected by the state guaranty fund (if one exists). The means the state agrees to back up an admitted carrier in the event the carrier becomes insolvent and is unable to pay claims.

However, guaranty funds provide on limited protection to policy holders. Most states, including California, limit recovery from the guaranty fund to $300,000, which isn’t much when your liability insurance limits are $1 million or more.

Neither admitted nor non-admitted status is an indication of stability or solvency. Many admitted insurers have failed in the past and some of those operating today are quite small. In contrast, many non-admitted carriers are members of the country’s largest insurance companies and carry very high ratings from independent rating organizations like AM Best. Whether admitted or non-admitted, any carrier with an AM Best rating of “A” or better is financially strong. So, the key to picking the right insurer is really the financial strength and not whether the carrier is admitted or non-admitted. 

 

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