Differences between an Admitted v non-Admitted (Surplus Lines) Insurer
Admitted insurers write the majority of professional liability insurance policies. But an admitted insurer may refuse certain malpractice risks because of specialized practice areas, firm makeup or claims/disciplinary activity. Just because admitted insurers refuse to write an entity may have nothing to do with the entity’s reputation or business practices. When admitted insurers decline a risk, it is normally because the risk is outside of the underwriting or pricing models for the admitted insurers’ insurance product. Given more underwriting and pricing flexibility a non-admitted insurer (Surplus Lines Insurer) can provide that entity with professional liability insurance coverage.
So what are the differences?
Admitted Insurance Companies
- Regulation:
- Admitted insurers are licensed and regulated by the individual state insurance departments where they operate.
- Admitted insurers file rates and forms with each state. The insurer must follow the approved rates and forms.
- Admitted insurers must comply with state insurance laws, including financial solvency requirements.
- Policyholder Protections:
- If an admitted insurer becomes insolvent, the policyholder’s protection lies with the state’s guaranty fund, which pays claims in such situations.
- Admitted insurers must participate in the guaranty funds.
- Claims paid by the state guaranty fund may settle for less than the insurance policy stated limits.
- Pricing and appetite:
- Individual states approve premium rates.
- For each risk, the state requires admitted insurers to follow the appropriate rates and forms.
- Unique risks may not fit filed rates and forms.
- Taxes and Fees:
- Admitted insurers pay the state directly for premium taxes and fees.
- The stated premium on the declarations page may include state taxes and fees.
- Certain states are exceptions to this rule requiring the state taxes and fees displayed on the declarations page
Non-Admitted Insurance Companies
- Regulation:
- State insurance departments do not license or regulate non-admitted insurers.
- Non-admitted insurers do not file rates and policy forms with state insurance departments.
- The state insurance department “Whitelist” show approved surplus lines insurers.
- States may require declination of the risk by admitted insurers prior to being eligible for placement with non-admitted insurers.
- Policyholder Protections:
- State guaranty funds do not provide insolvency protection for a non-admitted insured policyholder.
- This means there is a higher risk of unpaid claims in the event of insolvency. Pay close attention to non-admitted insurers AM Best/Demotech ratings.
- Non-admitted insurers may have higher AM Best rating than admitted insurers. States have more stringent financial capital requirements for non-admitted insurers versus an admitted insurer.
- State insurance departments may not intercede with a dispute between the insurer and insured.
- Non-standard policy forms/endorsements may restrict coverage.
- Pricing and appetite:
- States do not regulate premium rates.
- Non-admitted insurers typically provide coverage for unique, high-risk, or hard-to-place risks that admitted insurers are unwilling or unable to cover.
- Non-admitted insurers can charge for individual risk exposures, an admitted carrier must follow its filed rates and forms. This gives a non-admitted insurer the ability to cover more diverse unique risks.
- Taxes and Fees:
- Surplus-lines brokers collect non-admitted insurers state premium taxes.
- Surplus-lines brokers are responsible for reporting and paying the premium taxes to the states
So having your professional liability insurance policy placed with a non-admitted carrier is not a bad thing. But it requires extra due diligence into the insurer’s financial strength and reputation.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
