As a contractor, knowing the difference between admitted and non-admitted insurance companies is key—kind of like knowing the difference between a hammer and a nail gun!
In the most simplistic terms, an “admitted” insurance provider has been approved by a state’s Department of Insurance, and a “non-admitted” carrier has not.
While this simple definition might make non-admitted carriers seem less legitimate, both admitted and non-admitted carriers are regulated and both have their benefits depending on your business and what you need to insure. Insurance companies that are not admitted, also known as non-admitted or surplus lines insurers, are not licensed or regulated by the state. This allows them to operate under less stringent guidelines and specialize in high-risk or custom insurance needs.
One of the main benefits of buying from an admitted insurance carrier is that you won’t have to pay certain fees or taxes on your policy because the company follows regulations, so the expenses are unnecessary. However, policies from non-admitted insurers can be more flexible in the risks they insure. This helps them offer coverages for business risks that the regular insurance market won’t always write policies for.
The benefits of admitted insurance carriers
Admitted carriers have to go through a fairly long and drawn-out process to get approval in the states where they sell their policies. The state needs to verify that the carrier’s insurance policy forms, rates, and requirements all follow state insurance laws and regulations before allowing them to sell the policy. Because they must follow these strict guidelines to get approved, admitted carriers don’t have much flexibility in writing their policies. They can’t get creative with what and who they can insure.
However, once admitted carriers jump through these hoops, the state now backs the policy. That means if the insurer goes out of business or becomes insolvent, the state’s insurance department steps in to pay claims, up to a set limit.
In addition, if you feel your claim was improperly handled or disagree with an admitted carrier’s claims decision, you can appeal that decision to the state’s insurance commissioner. They have the power to overrule an admitted carrier’s decision.
The benefits of non-admitted insurance carriers
Non-admitted carriers are not regulated by the state Department of Insurance, but rather by the Surplus Lines Offices1. This is why non-admitted carriers are sometimes called “surplus lines carriers” or “surplus lines insurers.”
The regulations of a state Surplus Lines Office are far less strict than those of the Department of Insurance. Because they don’t need their policies to be approved by the state, non-admitted carriers have much greater flexibility regarding pricing and products.
Many small business owners obtain their General Liability Insurance from admitted carriers, but use non-admitted insurance companies for risks too difficult or expensive to place through their regular provider. In addition, non-admitted carriers can get creative with their policies. One of the most famous non-admitted insurers in the world is Lloyd’s of London. They’ve insured everything from Troy Polamalu’s hair to David Beckham’s legs2.
The bottom line: both carriers serve small business needs
The thing to keep in mind about admitted and non-admitted carriers is that one isn’t “good” while the other is “bad.” They both have their place when it comes to serving the needs of small businesses.
“Admitted” and “non-admitted” are just administrative designations in the insurance industry, and can’t tell you about the overall quality of the insurance products or the stability of the carrier offering it. The carrier you choose should be the one that offers you the insurance coverage that’s best for your business.
Regardless of whether an insurance company is admitted or non-admitted, they’re rated by the company A.M. Best. This company gives them a letter grade ranging from A++ to F. This can help you better determine which companies are reliable insurance carriers. In general, you’ll want to choose a company with a higher letter grade.