Admitted vs. Non-Admitted Insurance

A client sent me a note this morning regarding non-admitted insurance companies.  It reminded me of comments I made in 2006 in my newsletter…

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.

Admitted insurers agree to file forms and policies with the insurance regulators in your state. Their financials are subject to scrutiny as are their premium rates and underwriting practices. Most “standard” insurance policies are written through admitted insurers – home, auto, business owners policies. Many professional liability, directors and officers, and pollution liability insurance policies are written on a non-admitted basis. Liability coverage for “hazardous” industries and insurance for companies with poor loss experience may also be written on non-admitted policies.

Non-admitted insurers are under fewer regulatory restrictions. Some of the biggest and best insurers in the world choose to do business as a non-admitted insurer in some or all states. Many “household name” insurance companies have subsidiary insurers that issue insurance contracts 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.

Access to a state-run guaranty fund is touted by many as the key benefit of working with admitted insurers. The fund pays off should the insurer become insolvent. Many agents describe guaranty funds as the insurance equivalent of FDIC.

Not quite true.

First off, guaranty funds have limited liability to policy holders. Maine and Massachusetts limits recovery to $300,000 as do many states. Colorado limits recovery to $100,000. Not much when you are speaking of asset protection – million dollar buildings or liability insurance limits…

Some states provide no coverage for “High-Net Worth” individuals and organizations. Maine uses $25,000,000 as the threshold. Pennsylvania defines “high-net worth” as $50,000,000.

The key to selecting an insurance company is not its status as admitted or non-admitted. It is the experience and financial strength of the company. Review the ratings of AM Best and Weiss Ratings when reviewing your insurer. Neither is a guaranty. However, neither are the state guaranty funds.