If you've ever purchased insurance for your business, you may have seen the terms "admitted" and "non-admitted" referring to insurance providers. The admitted and surplus lines designations are made by each state's Department of Insurance. These terms may sound like confusing insurance jargon, but are important to understand as you consider purchasing insurance. Below, we outline the key differences of each.
What is an admitted policy?
Admitted insurance carriers are formally licensed, or "admitted", to the state's insurance marketplace. In order to be admitted, carriers must follow state-specific regulations and receive approval for their rating (aka pricing) model. As a result, admitted carriers have very little pricing flexibility for their insurance products.
Organizations that purchase insurance from the admitted marketplace enjoy a few benefits:
- Admitted policies are backed by the state's guaranty fund, which is essentially insurance for the insurance company in the event that the insurer goes out of business or is unable to pay claims.
- If a company disagrees with the way a claim was handled by their admitted carrier, they may appeal the decision with the state's department of insurance.
- Admitted policies typically don't have any additional fees and taxes, whereas surplus lines have taxes and fees added by the state.
However, due to the additional scrutiny placed on admitted products, policy coverage tends to be more limited and there are just some types of insurance and coverages that cannot be offered in the admitted market.
What is a surplus lines policy?
Surplus lines (also known as non-admitted) policies are far less regulated than admitted ones. These policies are overseen by each state's non-profit surplus lines association. Carriers are required to get approval from each state's association, but are not required to have their rates or policy forms approved.
There are a few key differences to note about surplus lines policies:
- Surplus lines carriers have much more flexibility in the pricing and coverage that they can offer to companies. This means that they may be able to insure more unique and emerging risks than their admitted counterparts.
- Companies may also be required to pay state taxes and fees for surplus lines policies.
How do I pick a policy?
Most insurance transactions are brokered, meaning that there is a licensed broker who sits between you and the carriers to explain the options you're considering. Your broker is your partner when making a decision about the best insurance policy for your business.
For most products, brokers are required to demonstrate they made a good faith effort to procure coverage for their clients in the admitted market before looking at surplus lines policies. However, some coverages are so unique that they enable brokers to bypass this requirement.
Beyond the admitted designation, it's important to consider the specific coverages and benefits you'll receive with each policy. Every business is different, and your broker can help you select the policy coverage that's best suited to the unique risk exposures of your business.
If you have any questions, don't hesitate to contact us.