Admitted vs. Non-Admitted: What is the difference?
If you spend your life raising your family in a “normal” home driving to your “regular” job, you may never face the decision of signing your name at the bottom of an application that warns you that the insurance company that is supposed to cover you is “Non-Admitted” in the state that you live in. Most risks can be covered with a company that has an “admitted” product in your state. The main difference between the two is that admitted companies and carriers are under the State’s Insurance Department’s control and oversight. In Washington, the Office of the Insurance Commissioner (OIC) explains it this way:
Surplus line insurance companies are not:
- Licensed by our office
- Subject to our review of their rates and policies
- Protected by our state guaranty funds
When is a Surplus-Lines Policy Necessary?
Admitted companies and their policies are, when ignoring the fact that some of the contracts are 50+ pages long, fairly standard. The basic framework of the policy (we like to call it the anatomy) is generally the same. All home policies should have 2 arms, 2 legs, a head, etc. and they usually exclude the same risks (earthquake for example) unless it’s specifically added. How companies than primarily differ is the special features or endorsements, the premium they charge for their coverage and their quality of service.
You usually won’t find an important coverage that everyone expects to have but only one company automatically includes it “for free.” So if a tree falls on your house, the question of what is and isn’t covered should (emphasis added) be about the same unless you or your agent really tried to cut some corners. Each price and coverage an insurance company wants to offer to the consumer must be approved by the state’s insurance department, unless they are non-admitted.
Below are some examples for risks that you may have a hard time finding an admitted policy for:
– A General Contractor that builds condos or needs special endorsements
– A high-rise
– A home in a remote location or in a wildfire zone
– Landslide insurance
– Environmental related policies
Surplus lines carriers have more flexibility in what risks to take on and what price to charge for it. That is why it’s very important to provide your agent will all of the information to come up with the correct insurance program.
Some Common Misconceptions:
- Surplus-lines policies cover less and cost more: While this blanket statement may prove true more often than the client likes to see, the opposite can also be true. Especially when it comes to coverage, surplus lines policies might offer coverages that simply aren’t available in the standard market. Since the policies are manually rated by an underwriter at times, the final price might be better than an admitted product with like coverage.
- If I have a choice between an admitted policy and a surplus lines policy, I should select the cheaper one if the coverages look the same: If you try to compare (sometimes 100+) pages of policy conditions, definitions, etc. between two policies, you will probably not be able to describe the difference. Interestingly, an agent cannot offer and sell a non-admitted product to a client if an admitted product that offers at least the same or better coverages is available.Even if the price might be slightly better, we are not serving our clients with the standard we are required to if we offer a surplus lines policy. That is because surplus line policies are supposed to be made available to risks that don’t offer another option and aren’t as regulated as described above. With that said, agents cannot always know for certain if there is a company that offers and admitted product so a surplus lines policy is the only one they found.Washington States’ OIC posts the following caution on their site: “Due to the unique nature and complexity of these policies, we recommend you read the terms and conditions of your surplus line policy carefully.” In our opinion, agencies (DOK Insurance included) that offer these types of policies need to make sure they read, interpret and present the surplus lines option to the consumer carefully. You are busy running and growing your business and the last thing most business owners want to do is read through 80 pages of an insurance policy.
Please do not hesitate to call us at 425-242-5252 for any of your insurance needs, non-admitted or admitted. We work with the largest non-admitted carrier networks to make sure we can find a solution for your business, no matter how unique.
1500 Benson Road South, Suite 201
Renton, WA 98055