Both admitted and non-admitted insurers write the policy, accept the risk, and pay the claims. From the premiums collected and invested the insurer pools the premiums for claims and expenses associated with running an insurance company. So, what is the difference between an admitted and non-admitted insurer?
Each state licenses admitted insurers. Admitted insurers must get licensed in states to write policies. Each state’s insurance department regulates these insurers. The regulations vary by state. Admitted/ licensed insurers must:
1. Allow state regulators to monitor the finances and submit to market conduct audits making sure the insurers are financially sound and using fair and honest business practices.
2. Allow each state to approve the insurer’s policy forms and/or rates.
3. Admitted insurers contribute to a state fund, called a guaranty fund used to pay claims if any of the licensed insurers go bankrupt.
4. Collect insurance premium taxes which are normally shown as part of the premium and remit taxes to the state.
Each state licenses insurance agents that write business in that state. States require agents to attempt to find an admitted (licensed) insurer for the insurance risk. If the agent cannot find an admitted insurer and the agent has a surplus lines license the agent can place the insurance risk through a non-admitted or surplus lines insurer.
States do not license, and state insurance departments do not regulate non-admitted insurers. The domiciled state or country regulates the non-admitted insurer. Non-admitted insurers do not have to file rates and forms with the state. This allows non-admitted insurers to accept a broader range of risks than an admitted insurer because they can craft the coverages and charge an adequate premium for unusual risks.
Non-admitted insurers are ‘accepted’ by the state to do business in that state. A nationwide acceptance (White-List) of non-admitted insurers that meet the acceptance criteria. If not on the ‘White-List’ the surplus lines agent must provide required additional documentation to the state when placing the risk. Non-admitted insurers do not participate in the state guarantee funds so if a non-admitted insurer goes bankrupt there is no guarantee fund to protect the insured. Accepted non-admitted insurers are financially sound. Normally a ‘White-Listed’ non-admitted insurer must meet stickier financial requirements than an admitted insurer.
Although financially sound, insureds need to carefully read a non-admitted insurer’s policy. The non-admitted insurer’s policy forms and coverages may differ from an admitted insurer. The insured needs to understand the coverage differences. The individual state insurance departments may be of little help in resolving disputes between the insured and a non-admitted insurer.
The non-admitted insurer does not collect state premium taxes. Surplus lines agents collect and report state premium taxes to the individual states. An insured can expect to see the amount of surplus lines taxes and fees collected shown on the insurance policy. In addition, it is the responsibility of the surplus lines agent to make sure that the non-admitted insurer meets the requirements of the individual states.
It is important to note that non-admitted insurers are likely able to obtain a license in each state. The non-admitted insurer chooses to operate on a surplus line basis.
Lee Norcross, MBA, CPCU, CPIA
Managing Director, CEO
(616) 940-1101 Ext. 7080