Risk & Business Magazine JGS Insurance - Fall 2020 | Page 26

INSURANCE 101
INSURANCE 101
Admitted Vs.
Non-admitted Carriers
There are times when the
coverage you need is
available exclusively from a
non-admitted carrier. That
being said, it is important
to understand the difference between
admitted and non-admitted carriers, as
well as the advantages and disadvantages
of each.
ADMITTED CARRIERS
An admitted carrier is one that follows
guidelines set forth by the state, and is
therefore licensed in the state or country
in which the insured’s exposure is located.
These guidelines vary from state to state,
and some are more stringent than others.
The obligation to follow state regulations
and submit rates to a state’s department
of insurance limits the flexibility of the
insurer. If an admitted carrier becomes
insolvent, the state guarantee fund
steps in to pay out claims and premium
remuneration where applicable.
NON-ADMITTED CARRIERS
It is a common misconception that
non-admitted is synonymous with nonlicensed.
In reality, non-admitted carriers
do not have rates filed with the state and
therefore are not as highly regulated, but
this also means they are not protected
by state funds. Because of this, they are
sometimes able to offer better rates–
these carriers can base price on specific
exposures. Further, certain complex
risks require the use of non-admitted
carriers because the conventional
insurance marketplace fails to provide
adequate coverage. However, in the case
of insolvency, the state will not pay the
carrier’s outstanding claims and premium
remuneration.
JUDGING FINANCIAL STRENGTH
Since with a non-admitted carrier you
are not guaranteed payout from the
state in the case of insolvency, as you
are with an admitted carrier, one of
the most important things to consider
when purchasing coverage through a
non-admitted carrier is its rating from
firm A.M. Best, which rates a carrier
on financial strength and size based on
policyholder reserves. As long as you
are aware of market conditions and are
sure the carrier is reputable, buying
coverage from non-admitted carriers can
be beneficial: they often provide lower
rates, absolute control over coverage
terms and coverage unavailable through
admitted carriers (including specialty
risks, risks that are unusual or those that
are unusually large).
CHOOSING PRUDENTLY
Non-admitted does not mean that an
insurer is not regulated–many states do
regulate non-admitted insurers. In fact,
many non-admitted carriers are actually
admitted carriers in other states. Nonadmitted
carriers intentionally opt out of
filing rates with the state not necessarily
because they are unable to comply, but
because doing so provides the advantages
mentioned above. However, just because
a carrier is admitted doesn’t mean it
is financially solvent. Because of state
restrictions, admitted carriers’ payouts
may increase faster than permitted
premium increases in certain classes of
business, leading to financial instability.
When making carrier decisions, consider
whether the carrier is admitted or nonadmitted,
as well as if it is financially
capable of paying a claim in the event of
an accident. +
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