One of the most common insurance questions we hear from the small-business owners we talk to every day is about the difference between admitted and non-admitted insurance companies. If you’ve never heard about admitted and non-admitted insurance carriers, you probably will if and when you start shopping for insurance.
Here’s an overview of what each of these terms means and how both types of carriers might impact your coverage as a business owner.
Admitted Insurance Carriers
An insurance company that is “admitted” has been approved by a state’s insurance department. The lingo you’ll most often hear in insurance contracts and informational materials is that an insurance company is “admitted by the state insurance department.”
This status means that…
- The insurance company must comply with all state regulations regarding insurance (which are established and overseen by the National Association of Insurance Commissioners).
- In the event that the insurance company fails financially, the state will step in to make payments on claims as necessary.
For business owners, buying from an admitted carrier means three things:
- You don’t have to pay various fees and taxes when you purchase a policy because the company’s status makes those expenses unnecessary.
- If the company fails for some reason (e.g., claims after a natural disaster deplete its reserve of funds), you have a guarantee that the state will step in and cover your claims.
- If you think your insurance company handled your claim improperly, you can appeal the decision to the state insurance department.
Non-Admitted Insurance Carriers
An insurance company that is “non-admitted” has not been approved by the state’s insurance department. This means that…
- The insurance company does not necessarily comply with state insurance regulations.
- If the insurance company becomes insolvent, there is no guarantee that your claims will be paid, even if your case is active at the time of the bankruptcy or financial failure.
- If a policyholder thinks his or her case was handled improperly, he or she cannot appeal to the state insurance department.
Which Is Better: Admitted or Non-Admitted Insurance Carriers?
While it may seem as if admitted carriers are the clear winner between these two types, the issue is not as straightforward as it might appear. In addition to admitted and non-admitted status, insurance companies are given letter grades from A++ to F, which work the same as classroom grades. (These grades are calculated by a credit rating firm called A.M. Best, which has been rating insurance companies since 1906.)
A non-admitted insurance company with a high rating is most likely a solid bet for insuring your company, while an admitted carrier with a C rating or below could be risky.
Still have questions about admitted vs. non-admitted insurance companies? The "insurance companies" section of Wikipedia's insurance page goes into more detail about how insurance companies are classified.