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California Admitted vs. Non-Admitted Insurance Carriers
When purchasing commercial insurance, you may be given the option of buying an insurance policy from a “non-admitted” insurance carrier from your agent or broker. At first glance it may appear what’s being offered is an inferior insurance policy, but appearances can be deceiving and before coming to this conclusion, it’s important to understand exactly what a “non-admitted” insurance carrier is and the important role they play in the California insurance marketplace.
What Is An Admitted vs. a Non-Admitted Insurance Carrier?
An admitted California insurance carrier is one that submits to specific requirements set forth by the California Department of Insurance (CDI). Admitted insurance carriers are required to file their rates with the CDI and cannot deviate from these rates without prior approval. In addition, admitted carriers are required to participate in the California Insurance Guarantee Association (CIGA) which covers the claims of policy holders up to a specified amount in the event an insurer becomes insolvent.
In contrast, a non-admitted carrier (also known as a surplus lines insurer) is not required to file their rates with the California Department of Insurance, which gives them the flexibility to adjust rates in light of fluctuating underwriting performance. In addition to increased pricing flexibility, non-admitted carriers also have greater flexibility in regards to the coverage’s they provide. It should be noted that “non-admitted” does not mean “not-regulated”. Non-admitted carriers must be approved by showing minimum financial and capital requirements before providing insurance in California. Once these requirements have been met, California will place the approved non-admitted carrier on a list known as “The List of Eligible Surplus Lines Insurers” (LESLI).
Why Do Non-Admitted Insurance Carriers Exist?
Non-admitted insurance carriers exist to provide insurance when admitted carriers are not able to meet the insurance needs of all insurance buyers. Many specialized risks, such as California professional liability insurance (sometimes called California errors and omissions insurance) or those with frequent claims such as California contractors insurance, can represent high risk exposures that admitted carriers are not willing to accept for many reasons including constraints imposed by their admitted status. However, non-admitted carriers are generally well suited to provide these lines because they have greater flexibility in terms of coverage’s and pricing to cope with fluctuating underwriting conditions. Without non-admitted carriers, individuals seeking some high risk lines of insurance would not be able to purchase it.
Choosing a Non-Admitted vs. an Admitted Insurance Carrier
Contrary to popular belief, non-admitted carriers are not inherently higher risk (or lower quality) insurers than admitted carriers. In fact, many non-admitted carriers are admitted carriers in another state or are subsidiaries of an admitted carrier. The most important factor in choosing an insurer is its financial strength as determined by a financial rating company such as AM Best. AM Best rates both the financial security and the financial capacity of insurers with financial security rated on a scale from best to worst of (A++ to S) and financial capacity (XV to I). For example, an “A++-XV” non-admitted carrier, while not eligible for California’s Guarantee fund in the event of insolvency, will generally have a much greater chance of financial solvency than a “B-III” rated insurer. Another factor to consider when deciding between an admitted vs. a non admitted carrier is fees. Insurance policies written on non-admitted paper are subject to additional cost’s including a surplus lines tax and a stamping fee.
Non-admitted carriers play a very important role in the California insurance marketplace by providing insurance for high risk exposures that otherwise may not be insured by an admitted carrier. Pay careful attention to the financial ratings of the insurer, whether it is an admitted or a non-admitted carrier. In addition, non-admitted carriers will be subject to additional fees. If you have additional questions, please feel free to contact an advisor with Schaedler Insurance and we would be happy to answer any questions you may have. Also, the CDI’s website is an excellent source of insurance information for consumers.
El Dorado Hills, California