While most insureds are properly and adequately covered through standard markets, occasions may arise where an agent needs or wants to consider non-admitted products to provide their clients with insurance for their home, auto or business. While it is true that excess and surplus insurance is not guaranteed by state funds, it is not necessarily an inferior or high-risk alternative to admitted products.
What Exactly is Non-Admitted Insurance?
State’s insurance commissioners have the authority to grant classification of admitted insurance products in what can be a long and complicated process. The rates and forms of every insurance product offered by an admitted carrier must meet each state’s regulations before they can be sold. Should the insurance company become insolvent, the state’s guarantee fund will help pay policyholder claims.
Non-admitted insurance products refer to those sold by excess and surplus lines carriers and are also regulated, but by the state’s surplus lines office. They do not have the benefit of the state backing any insolvency risk, but the carriers are required to set aside either a large reserve or secure adequate reinsurance.
Before we assume admitted is always better, and non-admitted is always the choice of last resort, consider the fact that sometimes a non-admitted product may offer some advantages.
- More flexibility. Non-admitted products often fill gaps left by standard markets. Agents can find coverage for clients that may be deemed too high-risk or have other insurability issues.
- Higher policy limits. Some clients desire or need coverage that exceeds what an admitted carrier is willing or able to offer.
- Higher guarantees. State guarantee funds place caps on what they will pay per claim, and in some states, an insured’s income level may preclude them from collecting on the claim at all.
- New products. Surplus lines are a proving ground of sorts for product innovation, allowing for data collection that will inform how to structure and rate policies when they become more mainstream.
The downside of non-admitted insurance? More variability exists in non-admitted products, so it can be difficult to compare pricing or coverages. Premiums are often higher than their standard counterparts and may require additional state fees and/or taxes.
The bottom line. Non-admitted insurance products that have the financial strength and backing of a strong, highly rated carrier can be a viable option for your insureds should the standard markets not be able to provide the proper coverage.