A non-admitted insurance company is an insurer that is not licensed by a particular state’s department of insurance, but can still legally sell insurance policies through surplus lines brokers who have special licenses to place coverage with these carriers.
Non-admitted insurers, also known as excess and surplus (E&S) lines carriers or surplus lines insurers, operate outside the standard insurance regulatory framework of the states where they sell policies. Unlike admitted carriers, these companies haven’t gone through the state’s licensing process and don’t adhere to the same strict regulations regarding policy forms, rates, and coverage terms.
This doesn’t mean they operate illegally or without oversight – they’re simply regulated differently, typically by the state surplus lines office rather than the department of insurance.
Non-admitted status is state-specific, which means an insurance company can be admitted in one state but non-admitted in another.
The primary purpose of non-admitted insurance companies is to fill coverage gaps in the standard insurance market. They provide solutions for unusual, specialized, or high-risk scenarios that admitted carriers typically avoid.
This flexibility makes them crucial to the insurance ecosystem, ensuring that even difficult-to-insure businesses can find appropriate coverage. They can customize policies, adjust coverage limits, and price premiums according to unique risk profiles without adhering to state-mandated rates and forms.
For business owners, non-admitted insurance might be their only option in certain situations. When standard markets reject coverage due to high risk factors, claims history, or specialized needs, non-admitted carriers offer an alternative.
However, this comes with trade-offs: while non-admitted insurers provide necessary coverage, policies lack certain state protections. Most significantly, if a non-admitted insurer becomes insolvent, policyholders cannot rely on state guaranty funds to cover outstanding claims, unlike with admitted carriers.
The regulatory distinction between admitted and non-admitted status directly impacts how claims are handled and what recourse policyholders have in disputes.
With non-admitted carriers, the state’s insurance department has limited regulatory authority regarding claims handling. While policyholders can still file complaints with state regulators, they typically don’t have the same formal appeals process available as with admitted carriers. State insurance commissioners generally have more limited jurisdiction over non-admitted insurers than admitted ones.
This different regulatory framework makes it especially important for businesses to thoroughly research the financial stability and reputation of any non-admitted insurer before purchasing a policy. Checking ratings from agencies like A.M. Best, Standard & Poor’s, or Moody’s can help assess insurer stability.
Most states require insurance agents and brokers to make a diligent effort to place coverage with admitted carriers before accessing the non-admitted market. This process, often called a ‘diligent search‘ or ‘declination requirement,’ helps ensure the non-admitted market serves its intended purpose of covering otherwise uninsurable risks.
Examples of Non-Admitted Insurance
Here are two common scenarios where non-admitted markets are utilized:
Example 1: Restaurant Group
Coastal Restaurant Group owns several high-end seafood restaurants along Florida’s hurricane-prone Gulf Coast. After experiencing two major hurricanes in three years, the company found that admitted carriers either refused to offer property insurance or quoted prohibitively expensive premiums with limited coverage.
Through their broker, they secured coverage from a non-admitted insurance company specializing in coastal property risks. The non-admitted carrier offered a customized policy with specific wind and flood provisions tailored to the restaurant group’s unique exposure.
While the premium was higher than standard market rates, it provided comprehensive coverage unavailable through admitted insurers. When a category 3 hurricane damaged two locations the following year, the policy responded with prompt claim payments that kept the business operational during repairs.
Example 2: Tech Startup
TechSecurity Solutions is a startup developing innovative cybersecurity software with AI components.
They struggled to find professional liability and errors & omissions coverage from standard carriers. As an emerging technology company in a field with limited claims data, admitted insurers considered their risk profile too uncertain.
A non-admitted insurance company specializing in technology firms offered a policy specifically designed for AI and cybersecurity providers, with coverage for data breaches, intellectual property disputes, and regulatory compliance issues.
The coverage included terms that acknowledged the company’s unique business model and potential liability exposures. When TechSecurity faced a lawsuit alleging their software failed to prevent a client’s data breach, the non-admitted policy covered their defense costs and settlement, preventing potential bankruptcy.
Pros and Cons of Non-admitted Insurance
The primary benefit of non-admitted insurance companies is their flexibility to cover risks that the standard market cannot or will not insure.
This adaptability allows businesses with unique or high-risk profiles to secure necessary coverage rather than operating uninsured. Non-admitted carriers can respond more quickly to emerging risks and market needs, often developing innovative coverage solutions before admitted markets.
Their freedom from rate and form regulations enables them to tailor policies to specific business situations and modify coverage as risks evolve. Many non-admitted insurers specialize in particular industries or risk types, providing expertise that generalist admitted carriers may lack.
Despite these advantages, non-admitted insurance presents several challenges for business owners. The most significant drawback is the lack of state guaranty fund protection, which means if the insurer becomes insolvent, policyholders have no safety net for unpaid claims.
Non-admitted policies typically cost more than comparable admitted coverage due to surplus lines taxes and fees, which can range from 2-5% of premium depending on the state. These taxes are typically collected by the surplus lines broker and remitted to the state.
Policy language may also be less standardized and more complex, requiring careful review to understand coverage terms and exclusions.
Claim disputes can be more challenging to resolve without the option to appeal to state regulators, placing greater importance on selecting financially stable carriers with strong reputations for fair claims handling.
Admitted vs Non-Admitted Insurance Carriers
| Factor | Admitted Carriers | Non-Admitted Carriers |
|---|---|---|
| Cost | Generally lower premiums | Often higher premiums due to surplus lines taxes and fees |
| Regulation | Strictly regulated by state insurance departments | Less regulated; overseen by surplus lines offices |
| Guaranty Fund Participation | Participate in state guaranty funds | Do not participate in state guaranty funds |
| Flexibility | Limited; must use state-approved forms and rates | High; can customize policies and pricing |
| Risk Appetite | Standard risks | Specialized, unique, or high-risk coverage |
| Policy Forms | Standardized, state-approved forms | Can use proprietary forms; more variation |
| Claims Disputes | Can appeal to state insurance commissioner | Limited state-level recourse for disputes |
| Market Access | Direct access for agents/brokers | Often requires surplus lines broker |
Did You Know?
Non-admitted insurance companies often serve as insurance market innovators, developing and testing coverage for new and emerging risks before they become standardized in the admitted market.
Many coverage types now commonly available from admitted insurers, e.g. cyber liability, drone insurance, and cannabis business coverage, were first developed by non-admitted carriers willing to insure these risks when data was limited.
This pattern of innovation continues today with non-admitted insurers pioneering coverage for risks related to cryptocurrency, artificial intelligence, and climate change adaptation, demonstrating how the surplus lines market functions as both a safety valve and an incubator for the broader insurance industry.
Sources
Nonadmitted insurer – IRMI
Admitted vs. non-admitted insurance: What’s the difference?
What Are Admitted vs. Non-Admitted Insurance Companies?
Non-admitted Insurer Meaning & Definition
Admitted vs. Non-Admitted Insurance Carriers: Here’s the Difference
Admitted vs. Non-Admitted Carriers – Benchmark Insurance Company
What Is a Non-Admitted Carrier and When Might You Use One?
Understanding Admitted and Non-Admitted Insurance Markets