There are two types of insurance companies: admitted and non-admitted. At first glance, you may think going with an admitted carrier is the safer option for procuring insurance coverage for your account, but that is not necessarily always the best route.
Admitted insurance companies are approved by a state’s insurance department and must comply with the state’s regulations, including rates and policy forms. Non-admitted or Excess & Surplus Lines (E&SL) carriers are not backed by the state’s insurance department and don’t have to comply with its regulations. It’s important to note, however, that although non-admitted carriers are not regulated by the state, there is still significant oversight. In the admitted market, the carrier is the regulated entity, whereas in the non-admitted market, the surplus lines broker is the regulated entity and subject to state audits, with the non-admitted carrier regulated in its state or country of domicile. There are stringent financial regulations, and most states require greater monetary reserves for non-admitted carriers than they do for admitted carriers.1
Both types of carriers are evaluated and graded by credit rating agency A.M. Best for their financial strength and ability to meet their insurance obligations. Grades range from “A++” to “S.” The rating system also includes a numeric symbol which designates the carrier’s financial size category.
Rate Adequacy, Greater Flexibility with Non-Admitted Carriers
Because an E&SL carrier isn’t required to comply with the state insurance department’s rates and policy forms, it has greater flexibility to develop industry-specific insurance programs with broader, more comprehensive coverage, particularly for difficult-to-place niche markets and coverages that admitted carriers shy away from. E&SL carriers can also obtain rate adequacy based on the exposures of the risk and experience of the industry niche or coverage line, which provides clients with the confidence that they are committed to the space for the long haul and are able to meet claim obligations. Their rating from A.M. Best also underscores their financial strength and stability and provides peace of mind for insureds.
On the flip side, admitted carriers are restricted by the rates they can charge. Often, they are also forced to continue to write policies even in the face of significant losses. Just take a look at the situation in California with carriers that provide homeowners insurance in wildfire-prone areas. They are hampered by the state’s insurance department in properly underwriting and rating policies and are prevented from exiting the market even in the face of significant losses. Eventually, these losses may cause some carriers to fold unless they can get adequate rates and perform robust underwriting.
If an admitted company fails financially, the state will step in to make payments on claims as necessary. There is no state guarantee that claims will be paid with a non-admitted carrier. However, it’s important to note that historically fewer non-admitted carriers have faced insolvency than admitted carriers. They have significantly more reserves to cover losses in part due to greater underwriting discipline and rating flexibility.
Both admitted and non-admitted carriers are critical to the insurance industry for competition and innovation. Non-admitted carriers often step in with innovative insurance solutions and are the go-to resource during a hard market where capacity is limited and admitted carriers restrict their coverage.
Manchester Specialty Programs is proud to partner with a select group of “A++” and “A” rated or better financially sound insurance carriers to cover the insurance needs for Home Care, Allied Health and Human/Social Services organizations. For more information about our portfolio of business insurance solutions for the broad spectrum of home health care, hospice, and medical staffing organizations, please contact us at 855.972.9399.
1Insurance Journal