Every state has a department of insurance that regulates the industry within the state. One of the jobs of any state’s department of insurance is to license, or admit, carriers. This is why insurance companies that are licensed are often called admitted carriers. To be admitted, carriers have to:
A guaranty fund is simply a way for the state to make sure policyholders are protected if an admitted carrier becomes insolvent. If that happens, the state steps in to pay policyholders’ claims. Essentially, the fund ensures that an insurance carrier’s promise to consumers is fulfilled.
You can think of the state guarantee fund much like how the Federal Deposit Insurance Corporation (FDIC) insures bank deposits. If a bank becomes insolvent, the deposits are protected by the FDIC.
Non-admitted carriers, sometimes referred to as excess and surplus (E&S) insurance companies, are not licensed in the state where they are selling policies.
That said, all US-based E&S carriers are licensed in the state where they incorporated, and most need to meet financial requirements to be eligible to provide insurance in the state. E&S carriers generally cover situations that admitted carriers don’t want to cover, such as high-risk homes.
The difference between admitted and non-admitted insurance companies is pretty clear: one is licensed by the state and the other is not. However, that doesn’t necessarily make one better than the other. Each has benefits that may be valuable to you depending on your situation.
Let’s look at admitted insurance companies first. Getting a policy from an admitted carrier means you have recourse if you think your insurer behaved unethically. Plus, you get the comfort of knowing your claim may be covered even if your carrier goes bankrupt. On the other hand, the rules admitted carriers have to follow typically mean they are less flexible. They may not be able to offer you a policy if your home is in a high-risk area or is made with unique materials.
Non-admitted carriers aren’t bound by the same rules and regulations that admitted insurance carriers are, so they may be able to cover you when admitted carriers can’t. However, that benefit often comes at a price. Admitted carriers generally offer better rates compared to non-admitted carriers who usually charge fees and taxes on top of the premium.
Non-admitted carriers also don’t have the backing of the state, so you may be on the hook for claims in the rare case that your carrier becomes insolvent. But it’s important to note that non-admitted carriers, while facing less regulation, are typically monitored for their financial health.
Honestly, whether or not you use an admitted carrier may not be up to you. Most states have rules regarding how many times you must be denied by admitted insurance companies before a broker can look for non-admitted insurance. If coverage from an admitted carrier is available, then you most likely need to take it.
Similarly, admitted carriers can have strict underwriting guidelines. If your home doesn’t fit in those criteria, then it may be difficult to get insurance from an admitted carrier.
For example, a California homeowner may be denied for standard homeowners insurance because their house sits in a wildfire zone. The laws governing insurance in California say their broker can look for coverage from a non-admitted carrier after three denials. Once the homeowner is denied three times, their broker can contact a surplus lines broker to start looking for an E&S policy.
Chances are that when you call your local insurance agent, they’re going to get a quote from a carrier that is licensed in the state. Most major carriers are admitted in all 50 states, and unless your agent has a license to sell E&S insurance, then admitted carriers are their only option. If these carriers are able to offer you quotes, then you won’t have a chance to look at non-admitted options.
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