Admitted vs Non-Admitted Insurers

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When your small business requires insurance and you begin looking for coverage, you may encounter two unfamiliar terms: Admitted insurers and Non-Admitted insurers. What these two terms mean is not immediately obvious. However, understanding what they mean might have a significant impact on the carrier you purchase insurance from.

When understanding the difference between “Admitted” and “Non-Admitted,” it’s perhaps easier to substitute the word “Admitted” for “licensed.” In this sense, the key difference between the two types of insurance carriers deals with whether an insurer is licensed or not licensed in a given state.

This does not mean that Non-Admitted insurance carriers should never be considered. Let’s look at the specific differences between the two.

Admitted Insurance Carriers

An insurance carrier is considered “Admitted” in a state when that insurance carrier is licensed to sell insurance in the state. Admitted insurance carriers will contribute to their state’s Guaranty Fund. The State Guaranty Fund is set up in each state to ensure that anyone who buys insurance from a licensed insurance company within that state will be protected if that company goes bankrupt and cannot pay out compensation that is owed to policyholders.

Should the licensed, or Admitted insurance carrier, default on payments for any reason, the fund will pay all policyholders in its stead. As such, the State Guaranty Fund is itself a form of backup insurance for policyholders.

Non-Admitted Insurance Carriers

An insurance carrier is considered “Non-Admitted” if that carrier does not contribute to the State Guaranty Fund. While it may seem odd that such companies are allowed to conduct business within a state, there are situations where the insurance companies that operate in a given state cannot or will not cover certain scenarios.

If the state believes that there is a need for coverage option not offered by Admitted carriers, it will allow what are known as “excess line” or “surplus” insurers. Non-Admitted carriers fall into this category and often provide different types of insurance that Admitted carriers do not.

Still not sure what you need?

Head on over to CoverWallet’s Insurance Checklist. There you’ll find a list of insurance types needed for your industry.

Admitted v. Non-Admitted Insurance Carriers

Is it better for your business to go with an Admitted or Non-Admitted insurance carrier? The answer to that question depends on what type of insurance your business currently needs. If your business requires a type of insurance that can be purchased through a licensed or Admitted, carrier, then it may be more prudent to purchase that insurance through a licensed carrier. That way, your business has some protection should the carrier default.

However, if your business requires coverage not offered by a licensed carrier, you should know it’s often fine to purchase insurance from a Non-Admitted carrier. Should you choose to purchase insurance from a Non-Admitted carrier, you or your broker will need to provide documentation that your insurance has been purchased from a Non-Admitted Carrier, and that your business made good faith efforts to purchase that insurance from an Admitted carrier.

In general terms, it is better to purchase insurance from an Admitted insurance carrier when possible, but still acceptable to purchase a policy from a Non-Admitted insurance carrier if the situation is a better fit.