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Admitted vs. Non-Admitted Carrier: What’s the Difference?

Sarah Knights
October 18, 2021
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There is one primary difference between an admitted carrier and a non-admitted insurer: an admitted carrier is approved by the state’s insurance department, whereas a non-admitted carrier is not approved and, therefore, does not have state backing. 

What is an Admitted Insurance Carrier? 

According to the state’s insurance department,  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, which has a number of important implications: 

  • The insurance carrier must comply with all regulations set forth by that state’s department of insurance. 
  • By backing the insurance carrier, it means that if the carrier suffers a financial failure (if it is declared insolvent and must be liquidated), the state guarantees that it will cover claims on the insurance carrier’s behalf, up to the state’s specified limit.  
  • Any claimant who feels their claim was improperly handled by an admitted insurance carrier can file an appeal with the state’s insurance department. 
  • Consumers who purchase admitted insurance products do not have to pay certain taxes and fees on their policies.

How does a carrier become an admitted carrier? 

To become an admitted carrier, an insurance company must file an application with the state insurance commissioner in each state and become licensed. As an admitted carrier, the insurance company must comply with all regulatory requirements for insurance in that state, including submitting and receiving approval for all of its forms and rates as well as handling claims. 

Each admitted insurance company is required to pay a portion of its revenue to the state’s insurance guaranty association, which then pays claims should the carrier become insolvent. 

What is a Non-Admitted Insurance Carrier? 

Non-admitted insurance carriers are not licensed and not regulated by the state’s department of insurance. Instead, these carriers are regulated by the state’s surplus lines office, although those regulations are less stringent. These carriers are also known as excess and surplus insurance carriers or surplus lines insurers. There are several differences between admitted and non-admitted carriers: 

  • A non-admitted carrier cannot typically offer policies that are available on the admitted insurance market, but it can offer unique insurance products that cover specific risks and other coverages that admitted insurance carriers generally do not offer. 
  • Non-admitted carriers don’t have to follow the state’s rates, so they are often more flexible in pricing than admitted carriers. 
  • A policyholder can’t appeal to the state if they feel their claim has been mishandled by a non-admitted carrier, since these carriers aren’t backed by the state. Additionally, if a non-admitted carrier becomes insolvent, the state will not step in to pay policyholder claims. 

Factors to consider when choosing between admitted cyber insurance carriers and non-admitted cyber insurance carriers:

There are several factors companies should consider when purchasing cyber insurance and choosing between admitted carriers and non-admitted carriers. To begin with, it’s crucial to note that the “admitted” designation is not a reflection of the quality or stability of an insurance carrier or its products. Both admitted and non-admitted insurance products need to be sold by insurance agents and brokers who are appropriately licensed. 

In the U.S., some insurance carriers offer both admitted and non-admitted insurance products. For instance, an insurance carrier may have an admitted designation in one or a few states, allowing them to offer non-admitted products in other states. Checking out the status of a cyber insurance company’s state licensing is one of the first things you should do when you are searching for cyber insurance companies. There are a few other things to consider when choosing between admitted and non-admitted cyber insurance carriers: 

  • It is crucial to choose appropriate insurance coverage according to your company’s risks. If, for example, you require coverage for risks not available in the admitted insurance market, non-admitted insurance is the only option. 
  • Ratings are assigned to both admitted and non-admitted cyber insurance carriers. According to AM Best, a carrier’s rating can range from A++ to F. The rating indicates how well a carrier will be able to repay its debts, its financial strength, and many other factors. Generally, insurance companies with high ratings are safer to choose, as high ratings indicate that the company has a good financial standing and can meet both its obligations and financial obligations. 
  • Non-admitted cyber insurance policies may be your best option if you have been rejected for coverage in the admitted market, for example, if you require a coverage limit that is higher than what is offered in the admitted market. 
  • In choosing an admitted cyber insurance carrier, you will not be required to pay certain licenses and fees that you would have to pay for non-admitted cyber insurance policies. However, since non-admitted cyber insurance carriers are not bound by state rates, they have more flexibility and may be able to offer more competitive rates when compared to admitted carriers.
  • If you purchase non-admitted cyber insurance, your company or insurance broker must provide documentation to indicate that you made a good-faith effort to purchase insurance from an admitted carrier. In that case, however, it does not mean you must settle for inferior coverage; it is perfectly acceptable to purchase non-admitted cyber insurance if you just are unable to purchase comparable cyber insurance coverage in the admitted market. 

When it comes to choosing between admitted cyber insurance carriers and non-admitted cyber insurance carriers, there is no one right answer for every business. Both admitted and non-admitted carriers have pros and cons, so companies should weigh their risks and coverage requirements against the available cyber insurance products on the market to find the best fit.