Policyholders assume the insurance they sign up for has been approved by a federal or state organization. This is not always the case. Some companies offer insurance without government approval. Overall, it comes down to admitted or non-admitted carriers.
An admitted insurance carrier must comply with the policies established by the state. Failure to do so results in fines and other consequences. Conversely, if the admitted carrier maintains a good standing, the state will provide assistance should it fail financially. Namely, the state will pay off insurance premiums.
A non-admitted carrier is not always a sham business. It still complies with standard insurance regulations; however, not all of the ones the state normally imposes. Consequently, they are not protected by the state.
What does this mean for the policyholder? First, should the company become insolvent, the insured is not guaranteed that their claim will be paid. Second, if they feel their request wasn’t handled properly by the carrier, the policyholder can’t appeal the case to a state’s insurance regulators.
Non-admitted companies are created to address the need for insurance that admitted companies normally don’t handle. Some examples are:
Selecting an admitted insurance carrier seems like the right choice for businesses. However, there are some advantages to joining a non-admitted insurer.
For example, non-admitted carriers might cover situations that admitted carriers do not. A good example of this is flooding due to hurricanes if your business is located on the coast.
In another scenario, a business might choose a non-admitted carrier because it has a higher rating than admitted options. Here, the former might have a B+ rating, which is a solid signal that it’s a legitimate operation. On the other hand, an admitted insurer with a C rating signifies it is at or slightly below average.
Though coverage for events like flooding can be a boon to many individuals, a non-admitted insurer might not be the best for them or their families. The main reason is potential loss should the non-admitted company go under. This can be enormously painful for people who require payoffs to handle vehicle repairs or medical treatments.
Yet, there is an advantage to being insured with a non-admitted carrier if you have difficulties being accepted by an admitted option. Since they don’t comply with the state’s regulations, these carriers have more leeway to accept clients with too many vehicle or medical claims.
The downside to being accepted is, no matter the size of the policy, the insured may have to pay exorbitant premiums. While it may be the right policy for the individual, the monthly payments could be a deterrent.