An admitted carrier is an insurance company licensed and regulated by the state government in which it operates, while a non-admitted carrier is an insurance company that is not licensed or regulated by the state government.
Admitted carriers must meet specific financial requirements and regulatory standards to be authorized to sell insurance in a particular state, and they are also required to participate in state guaranty funds, which provide protection to policyholders in the event that the insurance company becomes insolvent.
Non-admitted carriers do not necessarily have to comply with the same financial requirements and regulatory standards as admitted carriers, and they are not required to participate in state guaranty funds. These carriers typically specialize in high-risk properties, and they can provide coverage that is not available through admitted carriers, usually at a higher rate.
Does it really matter if I buy a policy from an admitted or a non-admitted carrier?
If you have a well-maintained property that shows pride of ownership, you want to make sure that it is insured at the full replacement cost value, and that you can rest assured that a potential claim will be paid. Since a non-admitted carrier doesn’t have to uphold to the same regulatory standards as an admitted carrier, there are several risk factors you need to be aware of:
- Financial risk: Non-admitted carriers are not subject to the same financial regulations and requirements as admitted carriers. This means that they may not have the financial resources to pay out claims or fulfill their obligations under the policy.
- Coverage risk: Non-admitted carriers may offer coverage at a wider range limit. For example, you may insure your property at a lower limit than your replacement cost. With some carriers, coverage can be placed on market value. This means that policyholders may not have the same level of protection as they would with an admitted carrier.
- Guaranty fund protection risk: Admitted carriers are required to participate in state guaranty funds, which provide protection to policyholders in the event that the insurance company becomes insolvent. Non-admitted carriers are not required to participate in these funds, which means that policyholders may not have access to the same level of protection.
Why an admitted carrier is always your preferred option
An insurance policy is first and foremost meant to protect you from a devastating financial loss if an accident occurs. In that case, you wouldn’t want to find out that your insurance is going out of business, and there is no one to back your claim, or that the policy limits won’t be enough to cover your losses. With an admitted carrier, this can’t happen. You can rest assured that the following will be in place:
- Replacement cost coverage: With an admitted carrier, you will in most cases get a coverage on a replacement cost basis that will adequately protect your property for any claim you submit.
- Claims payment protection: Admitted carriers are required to participate in state guarantee funds, which provide additional protection to policyholders in the event that an insurer becomes insolvent and cannot pay claims.
- Policy form approval: Admitted carriers are required to submit their policy forms to state insurance departments for approval before they can be sold. This helps ensure that the policy language is clear and unambiguous and that the policy provides the promised coverage.
- Market conduct oversight: Admitted carriers are subject to market conduct examinations by state insurance departments, which help ensure that they are treating customers fairly and complying with state laws and regulations.
There are cases where using a surplus carrier would make sense, such as if you have already been rejected by a number of other carriers due to being located in a geographically hazardous area or the property’s claims history. I any case, it should remain a last resort.
Bottom Line
In summary, buying an insurance policy from a non-admitted carrier can expose policyholders to a variety of risks, including financial risk, coverage risk, regulatory risk, and guaranty fund protection risk. Buying from an admitted carrier is always the better option. Honeycomb is an admitted carrier, rated AM Best “Excellent” (A-). This means you are getting coverage from a financially sound carrier; an AM Best rated carrier is required to not only have sufficient capital reserves to pay claims but their financial business practices are reviewed annually.
