Admitted Insurance: What it is, How it Works

Admitted insurance refers to coverage provided by insurance companies that are licensed to operate by the state insurance agency in which they are located. These organizations oversee almost every aspect of an admitted insurance company's operations, including capitalization requirements, policy forms, rate approvals, and claims processing. Non-admitted insurance businesses are not subject to these restrictions.

Understanding Admitted Insurance

Admitted insurance businesses must strictly adhere to the insurance regulations issued by the state's department of insurance. If admitted insurers are unable to pay claims due to failure or financial difficulties, the state's insurance fund will step in to ensure policyholders' claims are covered. In contrast, non-admitted insurance carriers lack such backup protection methods.

Customers who get coverage from an admitted carrier are not required to pay certain fees and taxes associated with those policies. Furthermore, admitted insurance policyholders have the opportunity to file an appeal with the state insurance department if their policies were handled erroneously.

What Non-Admitted Insurance Means

"Non-admitted" status indicates that an insurance carrier has not been approved by the state's insurance agency, which has the following consequences:

• The insurance business does not always follow state insurance regulations.
• There is no certainty that claims will be paid in the event of insolvency, even if a policy is in effect at the time of the transaction failure.
• If a policyholder believes his or her case was mishandled, there are no options for escalation to the state insurance department.

Many states allow non-admitted carriers to conduct business only when they serve a need that admitted carriers are unable to meet. However, this comes with a cost. Because non-admitted carriers are not state-regulated, they do not participate in the state guaranty fund, which protects policyholders in the event of an insurance carrier's insolvency. As a result, businesses who work with non-admitted insurers must inform policyholders about this fact. Furthermore, insurance brokers must maintain accurate records of transactions with non-admitted companies and pay premium taxes.

Purchasing insurance from a non-admitted insurer may appear riskier, but this is only one indicator of financial reliability. For example, financial strength ratings for insurance businesses range from D to A++. These grades are calculated by A.M. Best, a credit rating company that was created in 1899 and published its first reports on insurers in 1900. A non-admitted insurance business with a high rating is generally a safe bet, but an admitted carrier with a C rating or lower indicates a higher risk level.