Buying Insurance from a Non-Admitted Insurer: What You Should Know
Non-admitted insurers can be a good option for those who have been denied coverage.
The words "non-admitted" don't exactly inspire confidence. It can be enough to scare some people off, especially when they're purchasing insurance for their home, car, or business.
When you're buying insurance, you want the peace of mind that comes with having adequate protection if you should ever file a claim. Having a non-admitted insurer handling the security you seek could be a major turn off – that is, unless you know a thing or two about them.
In this article, we'll go over what a non-admitted insurer is, what policies they cover, and how the handle your claims.
How Non-Admitted Insurers Differ from Admitted Insurers
The significant differences between admitted and non-admitted insurers are the following:
- An admitted insurer must be approved by the state’s licensing department. A non-admitted insurer has not been approved.
- An admitted insurer must comply with all the regulations set out by the National Association of Insurance Commissioners (NAIC). A non-admitted insurer is not necessarily bound by those rules.
- An admitted insurer must file its rates with the state. The non-admitted insurer does not.
- An admitted insurer contributes to the state’s “guaranty fund” to protect against insolvency. A non-admitted insurer is not under such obligation.
Now, these differences don't mean that non-admitted insurers are a poor investment. They have their place in the insurance industry. They can be beneficial to the consumer in specific circumstances where an admitted insurer can fall short.
Benefits of Buying Insurance from a Non-Admitted Insurance Company
What you may not know is that many non-admitted insurers are owned by admitted insurance companies. They offer the same basic policies only with a little more leeway as to how and who they insure.
There are three primary benefits to selecting a non-admitted insurer over an admitted insurer.
They Still Carry a Rating
Just as admitted insurers carry a letter grading through A.M. Best, non-admitted insurers are also given a letter grading. You can review a carrier and quickly determine their financial strength through their grade (find out How to Pick the Right Insurance Company).
They Have More Control Over Their Coverage
Admitted insurers have limitations when it comes to coverage. They are only willing to cover certain perils and have specific limits.
A non-admitted insurer has greater flexibility because they are not bound by the regulations of the state Department of Insurance (DOI). They are, instead, regulated by the state's Surplus Lines Offices. That gives them greater latitude for covering perils that admitted companies would consider non-insurable (see A Look at Uninsurable Risk for related reading).
They Have Premium Flexibility
Admitted insurers are required by law to submit their rules and rates for approval. Non-admitted insurers do not have to file them. This enables them to cover their risks. This may mean a higher premium for the insured, but it gives them the coverage they would not otherwise be able to get.
Drawbacks of Insuring with a Non-Admitted Insurance Company
With the benefits come a few drawbacks that you should be aware of.
Here are the most important shortcomings to consider.
The non-admitted insurer is not required to strictly follow the regulations set out by the National Association of Insurance Commissioners. This gives them the ability to deny a risk that could be mandated for coverage under a policy with an admitted insurer, such as pre-existing conditions.
Once an admitted insurer is approved, they are required to contribute to their state’s guaranty fund. This fund pays an insured’s claim should the company become insolvent. A non-admitted company does not have this protection, which means the insured does not either (find out How to Choose an Insurance Company That Won't Go Out of Business).
Normally, if an insured has an issue with an insurance company, they can go to the state Department of Insurance to file a dispute. A non-admitted carrier, however, is not approved by the state DOI, so the insured does not have any resource to turn to should a claim be mishandled.
Who Should Buy from a Non-Admitted Insurer?
The main reason you would seek out a non-admitted carrier is if you were denied coverage through an admitted carrier.
If you're looking to cover a vacant home or one under construction, you would most likely have to obtain coverage through a non-admitted carrier.
Likewise, if you have repeated claims, you may only find coverage through a non-admitted carrier.
The threats of earthquakes and living near water could also be a reason to look into policies from non-admitted insurers.
Getting Admitted Insurance Through Your Broker
If you are working with an insurance broker, they are required by law to inform you if they are placing you with a non-admitted insurer (see What Is an Insurance Broker? to learn more about them and how they can help you).
They must also provide a statement of good faith that they tried to place you with an admitted carrier. This requirement must be in writing and signed by you stating that you understand the risks that are inherent with a non-admitted insurer.