Admitted Insurance: Definition & Overview

KEY TAKEAWAYS

• Admitted insurance is licensed in your state. Non-admitted insurance isn’t licensed in your state. This doesn’t necessarily make one better than the other.
• A non-admitted insurance carrier may have more benefits than admitted insurance does. It’s more specialized to fill the gap in high-risk areas.

What Is Admitted Insurance?

Admitted insurance is coverage offered by an insurance provider. This provider is licensed through the state insurance agency of the state they’re operating in. That makes them subject to that particular state’s regulations on insurance, claims handling, and rate approvals. If an admitted insurance company fails to meet state standards then the state can take over and pay claims on behalf of the company.

In comparison, a non-admitted insurer isn’t licensed in your state. So if they reach a point of financial failure then the state doesn’t offer the same protections to its customers. However, that doesn’t mean they aren’t allowed to sell insurance in your state.

Benefits of Admitted Insurance

The differences between admitted and non-admitted insurance carriers don’t stop at state licensing. Admitted insurance carriers have the following traits:

•  Built-in right to appeal their claim with the state insurance department
•  State intervention if the insurance provider undergoes financial failure.
•  Stricter underwriting rules

What is Non-Admitted Insurance? 

Non-admitted carriers are also known as surplus lines or excess and surplus (E&S) insurance. Even though they aren’t licensed in your state they can still offer good benefits for their customers. The benefits of using non-admitted Insurance include:

• Doesn’t have to follow the same underwriting rules as admitted carriers
• Doesn’t have to set the same rates as admitted insurers so they may offer more affordable rates
• Many non-admitted insurers are registered as admitted in other states
• Their policy forms and products aren’t regulated by the state so they might offer more
• They extend coverage in high-risk markets
•  Often more equipped to handle large losses.

The downside to non-admitted insurance products is that they aren’t covered by the state if they go bankrupt so your claim might go unanswered. And since their claims aren’t licensed by the state, there’s no support if you feel they’ve mishandled your claim.

Difference Between Admitted and Non-Admitted Insurance

The difference between admitted and non-admitted insurance is simple. Admitted insurance companies pay into a state guarantee fund. While non-admitted insurance doesn’t. Not paying into the state guarantee fund means that non-admitted insurance isn’t licensed by that state. So while they might meet the registration requirements in a different state, they’re considered non-admitted. 

For consumers, there’s an even bigger difference between admitted and non-admitted insurance. If a non-admitted insurance company goes bankrupt there’s no guarantee that their outstanding claims will be paid. So policyholders would potentially be left without recourse for their claim. Non-admitted policyholders also can’t file appeals with the state’s department of insurance. This is if they think their claim isn’t being handled properly. 

Summary

Overall, admitted insurance might seem like a safer bet since it’s licensed by the state. This offers consumers protection if the insurance company goes bankrupt. However, non-admitted insurance may be a better option for certain people. For example, those who don’t meet the eligibility requirements for admitted insurance. The best way to check an insurance company’s rating is through AM Best. This is an insurance credit rating firm that assigns grades of A++ to F to assess a company’s service.