Non-admitted insurance, also known as
surplus lines insurance, refers to insurance coverage that is not available from licensed insurers within a particular jurisdiction. In the insurance industry, most policies are underwritten and issued by companies that are licensed and regulated by state or national insurance authorities. However, there are certain situations or types of risks that traditional companies are unwilling or unable to insure.
In these cases, non-admitted insurers, also called surplus lines insurers, may step in to provide coverage. These insurers are not licensed in the state where the insured resides or the risk is located. The term “non-admitted” signifies that these insurers do not have to adhere to the same regulations and requirements as admitted insurers.
Non-admitted insurance, or surplus lines insurance, may be considered in certain situations where traditional, admitted insurers are unwilling or unable to provide coverage. Here are some scenarios in which you might want to consider non-admitted insurance:
High-Risk or Unusual Risks:
- If you are dealing with a high-risk activity or industry that mainstream insurers are hesitant to cover.
- For unique or specialized risks that fall outside the typical coverage offered by admitted insurers.
Flexibility:
Non-admitted insurers may have more flexibility in setting rates and terms, as they are not bound by the same regulatory constraints as admitted insurers.
Capacity Limitations:
- When traditional insurers have limitations on the amount of coverage they are willing to provide, and you require coverage beyond those limits.
Limited Regulation:
Non-admitted insurers are subject to less regulation compared to admitted insurers. However, they still need to comply with some regulations, particularly in terms of solvency and financial responsibility.
Market Cycle Fluctuations:
- During periods of a hard insurance market cycle when insurers are tightening underwriting standards and reducing capacity, making it difficult to secure coverage through admitted markets.
Emergency Situations:
- In urgent situations where immediate coverage is needed and there is not enough time to go through the traditional underwriting process.
-
Tailored Coverage Needs:
- When you require customized or specialized coverage that is not available in the standard insurance market.
-
Risk Management Solutions:
- When seeking alternative risk management solutions that may involve unique policy structures or risk-sharing arrangements.
Is it safe to use a non-admitted insurance?
While non-admitted insurance can provide solutions for certain risks, there are potential drawbacks and risks associated with relying on non-admitted coverage.
Limited Regulatory Protection:
- Non-admitted insurers are not subject to the same regulatory oversight as admitted insurers. This lack of regulation may expose policyholders to higher financial risk in the event that the insurer encounters financial difficulties.
-
Potential for Insolvency:
- Non-admitted insurers may have a higher risk of insolvency compared to well-regulated admitted insurers. This could result in the policyholder not receiving the full benefits of the policy in the event of the insurer’s financial failure.
-
Less Standardization:
- Non-admitted insurance policies may lack the standardization and consumer protection measures often found in policies issued by admitted insurers.
Market Volatility:
- The non-admitted insurance market can be more volatile and subject to fluctuations. Economic conditions, changes in regulations, and other factors may impact the availability and cost of non-admitted coverage.
Other Considerations:
Since 1906, A.M Best has been rating insurance companies with letter grades ranging from A++ to F (best to worst). At Martinez Insurance we highly suggest using only A rated carriers, or better. Anything lower than that would be too risky.
It’s also important to note that non-admitted insurance should ONLY be considered when admitted insurers are unwilling to provide coverage, and it is often a last resort for certain types of risks. Before opting for non-admitted insurance, individuals and businesses should explore coverage options with admitted insurers and consider consulting with a licensed insurance professional. If you have any questions, please feel free to contact us for a free consultation.
