What is the difference between an Admitted vs. Non Admitted Insurance carrier?

When looking for insurance, you might come across the terms “admitted” and “non-admitted” insurance carriers.

What is the difference between the two? 

Admitted Insurance Carriers

An admitted carrier is one that meets state standards and is licensed in the state or country where the insured exposure is located. These regulations differ by state, with some being more strict than others. The insurer’s flexibility is limited by the need to meet state laws and apply rates to the state’s insurance regulator. If an admitted carrier becomes insolvent, the state guarantee fund steps in to pay out claims and premium remuneration as required.

There are several types of insurance that are controlled by state regulators.  These include life insurance, car insurance, health insurance, and many types of standardized business insurance.  Because these policies are regulated, you can be assured that polices meet the minimum standards set by the regulators and that the costs will be comparable between carriers.

Because the insurance carrier is admitted, the state will guarantee the insurance policy even if the insurance carrier goes bankrupt.

Non Admitted Insurance Carriers

Non-admitted carriers do not file rates with the state and therefore are not as strictly controlled, but they are also not covered by state funds. As a result they might be able to give lower rates, but they could be higher risk..

Non-admitted carriers are used for insurance policies that are non-standard or are not widely available.  For example, professional liability insurance or medical malpractice insurance are both specialized insurance policies that are not necessarily available through admitted carriers. These policies are available through non-admitted carriers, however.

In general, non-admitted carriers provide an enormous range of specialty insurance policies that are not normally available through the admitted carriers in a state.

Your insurance broker has a requirement to place insurance with an admitted carrier first, and if the admitted carriers do not offer the policies you are seeking, the insurance broker is allowed to look to non-admitted carriers for the policy.

Non-admitted carriers are not backed up by the state government like admitted carriers are. This is why many insurance companies are rated by AMBest and others to identify their strength to pay claims.  You are responsible for looking at the financial creditworthiness of your carrier for non-admitted insurance.

Insolvency and Liquidation

As previously stated, one of the most significant distinctions between admitted and non-admitted insurers is the process that occurs if the company is considered insolvent and must be liquidated.

When an admitted corporation is liquidated, the state’s guaranty fund will assume responsibility for all insurance collection and reimbursement, both present and future. However, the state fund is not obliged to cover all claims because current laws restrict how much it will pay in claims based on the fund’s cap.

When a non-admitted insurance carrier is forced to liquidate, the procedure is somewhat close to that of more traditional bankruptcy proceedings. The liquidator will collect the company’s assets, assess all outstanding creditors, and then devise a plan to pay out the appropriate sums using company assets. After that, the proposal is sent to the court for approval.

Choosing Between Admitted and Non-Admitted Carriers

Regardless of whether the carrier is admitted or non-admitted, the most critical factor in making this decision is selecting a high-quality provider. What matters most is that the insurer can fully capture all of the risks, that the coverage conditions are competitive, and that the business is financially sound and secure.

Most companies negotiate with admitted carriers when they need a regular insurance package and non-admitted carriers when the coverage they need is difficult or impossible to obtain from an admitted carrier.

Non-admitted carriers can provide more generous rates and are more likely to negotiate benefits for high-risk cases. It is necessary to remember that there is no right or wrong response, and no choice is unquestionably superior to the other. Non-admitted companies are some of the biggest insurance brokers and may be just as financially stable, if not more so, than admitted companies.