What’s the difference between admitted and non-admitted insurance?
If you have no idea what the difference is between an admitted and non-admitted insurance company, then you’re not alone. Most people are covered under admitted insurance companies and may have never even heard of non-admitted insurance, which is sometimes also referred to as Excess and Surplus insurance. So what’s the difference and what are the advantages of each?
The only real difference between the two is that an admitted insurance company is backed by a given state’s insurance department. That means that if things should go south for the company for whatever reason, the state will take over and make claim payments on the company’s behalf. In return, the insurance company in question has to be “admitted” by adhering to the requirements of the state’s Department of Insurance. Admitted insurance companies also have to get approval for their rates from the state, so they tend to be the cheapest options.
A non-admitted insurance company, on the other hand, is not subject to state insurance regulations, nor is it financially backed by the state in which it operates. That said, it still has to follow certain laws, but isn’t subject to filing its rates with the state. Non-admitted insurance companies also have the freedom to be a bit more flexible as far as their regulations and what types of insurance they offer.
The Benefits of Non-Admitted Insurance
Given the two options, why would anyone choose non-admitted over admitted insurance? There are actually a few reasons. Non-admitted insurers tend to cover things that traditional insurance companies don’t. For example, if you live in an area that’s prone to things such as hurricanes, earthquakes, or wildfires then you may have problems finding an admitted carrier to cover you whereas a non-admitted company could. Keep in mind that a company’s status as non-admitted doesn’t necessarily mean that it’s less financially stable. Though you should always check out a company’s financial rating before working with them, non-admitted insurers aren’t always a bad option in certain circumstances. Not only can they provide higher risk insurance than many admitted companies, but they are also more open to covering non-U.S. citizens and those unable to find coverage elsewhere.