Admitted insurance refers to coverage offered by insurance providers who are licensed to operate by the state insurance agency in which they're based. These agencies govern nearly all aspects of an admitted insurance company's operations, including capitalization requirements, policy forms, rate approvals, and claims handling. Contrarily, non-admitted insurance companies are not subject to these regulations.

Key Takeaways

  • Admitted insurance refers to coverage offered by insurance providers who are licensed to operate by state insurance agencies.
  • Admitted insurance companies must adhere to regulations regarding policy forms, rate approvals, and claims handling.
  • If an admitted insurance company fails to adhere to state agency standards, the state can step in to make claims payments on the company's behalf. 
  • Admitted insurance policyholders enjoy certain comforts, including a means of addressing conflicts if they believe a claim has been mishandled.

Understanding Admitted Insurance

Admitted insurance companies must rigorously comply with state insurance regulations established by the National Association of Insurance Commissioners (NAIC). In the event that they fail to do so, the state may intervene in making claims payments on a company's behalf. On the other hand, with non-admitted insurance carriers, there are no such back-up protection mechanisms in place.

Purchasing coverage from an admitted carrier means customers don't have to pay certain fees and taxes as part of those policies. Furthermore, admitted insurance policyholders have an embedded right to appeal to the state insurance department, in instances where policies were handled incorrectly.

What Non-Admitted Insurance Means

“Non-admitted” status means an insurance carrier has not been approved by the state’s insurance department, resulting in the following consequences:

  • The insurance company doesn't necessarily follow state insurance regulations.
  • In cases of insolvency, there are no guarantees that claims will be paid, even if a policy is active at the time of a transaction failure.
  • If a policyholder believes his or her case was mishandled, there is no recourse available involving escalation to the state insurance department.

Many states allow non-admitted carriers to conduct business only in cases where such companies fill a need that admitted carriers are not equipped to handle. But this comes at a cost. Namely, because non-admitted carriers are not state-regulated, they do not contribute funds to the state guaranty fund, which protects policyholders from the potential bankruptcy of an insurance carrier. For this reason, businesses that contract with non-admitted insurers must alert policyholders to this fact. Furthermore, insurance brokers must provide statements confirming that they made good faith efforts to obtain insurance from admitted carriers before choosing a non-admitted carrier.

Non-admitted carriers are usually referred to as "surplus lines" or "excess lines insurers." 

Purchasing insurance from a non-admitted carrier may seem riskier, but non-admitted status is just one way to gauge financial reliability. Case in point: insurance companies also receive letter grades ranging from A++ to F. These grades are calculated by credit rating firm A.M. Best, which has been evaluating insurance companies since 1906. A non-admitted insurance company with a high rating is most likely a safe bet, while an admitted carrier with a C rating or below suggests a higher risk level.