Insurance is a crucial aspect of financial planning, providing protection and peace of mind in times of uncertainty. However, navigating the complex landscape of insurance can be daunting, especially when it comes to choosing between admitted and non-admitted insurance carriers.
THE RISE OF NON-ADMITTED MARKETS
Especially in catastrophe-prone locations, Lockton is seeing a trend toward non-admitted insurance markets as they are no longer considered a path of last resort. In fact, these carriers often provide superior customization options and can accommodate higher exposures, even in less risky geographical locations.
When it comes to weather-related coverage, non-admitted carriers offer solutions for assets that may be difficult to insure, such as homes near coastlines or previous wildfire burns. In addition, while some states are creating emergency insurance pools when admitted carriers are not available, non-admitted carriers can often provide more flexibility in underwriting and policy coverage that better fit your luxury lifestyle.
Understanding the differences between the admitted and non-admitted markets can empower you to make informed decisions. Let’s take a look.
ADMITTED INSURANCE CARRIERS
Admitted carriers have a history of solid performance, and are insurance companies that have obtained a license from a state's insurance department. Regulated by these state insurance departments, they are required to comply with stringent financial and solvency regulations to ensure they can meet their obligations to policyholders.
The benefits of working with an admitted carrier include:
Regulatory oversight. Admitted carriers are subject to strict compliance, which helps ensure their financial stability and reliability in the event of a claim.
Consumer protections. Admitted carriers are required to adhere to state insurance laws, including those regarding policy language, rates, and claims handling. These protections provide recourse in case of disputes.
Guaranty funds. Most states have guaranty funds that provide a safety net for policyholders in the event an admitted insurance carrier becomes insolvent. These funds can provide compensation for unpaid claims, offering an additional layer of protection up to $500,000 (but often lower).
Some of the downsides that are commonly seen:
Limited flexibility. State regulators can limit a carrier’s flexibility in underwriting and pricing policies. This may result in higher premiums or limited policy options for certain risks.
Limited access. When areas are deemed high-risk due to their geographical location, many admitted carriers are choosing to exit as a way to protect their profitability. This means the same number of people are competing for a smaller number of policies through a smaller number of carriers, which reduces access to coverage and increases cost.
Insolvency. Many of the admitted carriers that declared bankruptcy in states such as Florida were not rated by AM Best (opens a new window), the insurance industry leader. Savvy clients need to ensure they are not deceived by admitted carriers promoting inflated performance assessments through secondary rating services.
NON-ADMITTED INSURANCE CARRIERS
Non-admitted insurance carriers, also known as surplus lines insurers, are not licensed by the state but are allowed to provide coverage for perils that admitted carriers may decline. Lack of regulatory oversight doesn’t mean they aren’t a safe solution. It simply allows these carriers to operate under less stringent guidelines so they can specialize in high-risk or custom insurance needs.
There are considerable benefits involved when you work with a non-admitted carrier:
Specialized coverage. Non-admitted carriers can provide coverage for risks that may be difficult to insure through admitted carriers, such as homes near fault lines or yachts with helipads. Their expertise allows them to tailor coverage to meet your needs.
Flexibility. They are not bound by state regulations, giving them greater flexibility in underwriting and pricing policies. This flexibility can also lead to designing innovative solutions for certain risks.
Ownership. While some non-admitted markets are independent, the vast majority of Lockton’s relationships are with top-rated carriers who offer both admitted and non-admitted policies. This can provide additional peace of mind knowing that the parent company sees opportunities for both markets.
The cons of choosing non-admitted insurance carriers include:
Lack of regulatory oversight. Non-admitted carriers operate with less regulatory oversight compared to admitted carriers, which means you may have less recourse in the event of a dispute. Additionally, you may not have access to state guaranty funds if your carrier becomes insolvent.
Price tag. Since non-admitted carriers often specialize in high-risk coverage, their policies may come with higher premiums or deductibles to compensate for the increased exposure.
It’s good to know you have choices. Both admitted and non-admitted insurance carriers play important roles in the insurance market, offering different advantages and considerations. When choosing between the two, it's essential to carefully weigh the pros and cons and consider factors such as your specific coverage needs, financial goals, and risk tolerance.
This is where Lockton can help. Our longstanding relationships with both types of carriers can help us match their solutions to your situation. In addition, all Lockton carriers must meet our market security requirement of an A- rating or higher and financial size category of at least VII. This increases the confidence that your carrier - admitted or non-admitted – will meet their obligations.
Don’t try to decipher complex policy terminology or go through the insurer selection process alone. You’ve got Lockton.
The information provided in this article is for educational purposes only and should not be considered professional advice. Please consult with a Lockton representative for information regarding specific insurance products and services.