Insurance Requirement Question - Admitted vs. Non-Admitted Insurers?
Posted by Cary White on Tue, Feb 08, 2011 @ 02:07 PM
Far too often we encounter insurance requirements that require all insurers be Admitted. Presumably such requirements are intended to provide the certificate holder some comfort about the security of each insurer. Conversely, Nonadmitted insurers must provide less or insufficient security. While financial security of each insurer may be the goal, any additional protections afforded to the certificate holder by Admitted insurers are minimal at best and may be counterproductive.
Admitted Insurers
Admitted insurers are subject to modest financial oversight by the states where they are admitted. The level of oversight varies from state to state.
Admitted insurers must file their rates, policy forms and endorsements to each state insurance department for specific review and approval. This process is long, complicated and expensive. With few exceptions, Admitted insurers must use their filed rates, policy forms and endorsements without deviation.
In some states Admitted insurers may be covered by a state administered guarantee fund. In California this fund is called the California Insurance Guarantee Association (CIGA). CIGA provides some protection for policyholders should an Admitted insurance carrier be declared insolvent. CIGA has three separate funds organized by line of business that cover (1) workers' compensation claims, (2) homeowners and automobile claims (including personal injury), and (3) all other claims (e.g., products liability and commercial property and liability). Claims and/or statutory benefits pursuant to a policy under categories (2) and (3) above are limited to no more than $500,000.
The DOI maintains a list of Admitted insurers on line here.
Nonadmitted Insurers
Admitted insured do not meet the specific needs of many insurance buyers. Risk classes with high loss experience or potential, limited population, or with rapidly evolving legal circumstances are generally uninsurable by traditional Admitted insurers. Nonadmitted or “Surplus Line” insurers are typically the only option for such risks which are unusual, unusually large or when coverage is not available from Admitted insurers. Specialty risks such as general liability insurance for some classes of business like contractors, earthquake insurance and most professional liability insurance are and among those not written by Admitted insurers. Such risks have been written by nonadmitted insurers since the 1800’s. The Underwriters at Lloyds of London are famous for being Nonadmitted insurers and for the specialty risks that they write. Other Nonadmitted insurers are US and Foreign insurers that have elected to be Nonadmitted in one or more states to write specialty risks. Most Nonadmitted insurers are members of larger insurance groups that may contain one or more admitted carriers as well.
Nonadmitted insurers are not required to file their rates, policy forms or endorsements for review and approval. Consequently, because of their pricing flexibility and freedom to amend their forms to meet the changing needs of their policyholders and risk environment.
Nonadmitted does not necessarily mean unregulated. In California, Nonadmitted still must be reviewed and approved by the California Department of Insurance (DOI) for their financial stability, reputation and integrity. Every approved Nonadmitted insurer in California is an Admitted insurance carrier in a state or domicile other than California. Each Nonadmitted insurer must maintain a minimum of $15 million in capital and surplus at all times; have three (3) years of experience; have a valid license to transact insurance in their domicile state; file financial information with the CDI; and adhere to specific capitalization, investment and solvency standards established under the California Insurance Code. Approved Nonadmitted insurers in California can be found on California’s LESLI List. LESLI stands for "List of Eligible Surplus Line Insurers" which is a list of nonadmitted insurers approved by the Commissioner for placements of California surplus line risks. The DOI issues an updated List of Eligible Surplus Line Insurers (LESLI) list twice a year in June and December. Copies of the LESLI List are available online at the link above or by calling the Surplus Line Association of California (SLA) at (415) 434-4900 or the DOI at (800) 927-HELP.
Nonadmitted insurers are not covered by the state administered guarantee funds like California Insurance Guarantee Association (CIGA). Policyholders of Nonadmitted insurance policies, their additional insureds and third parties are most likely not eligible for protection from any state administered guarantee fund.
Finally, Nonadmitted insurers do not pay premium taxes. Policyholders of Nonadmitted insurance policies must pay a separate premium tax directly to the state.
Gap Insurers
A Gap insurer is a Nonadmitted insurer that is not found on California’s LESLI List, but can be used for placements of California surplus lines risks on a limited basis subject to certain specific conditions. In general, Gap insurers can be used only with the most sophisticated insureds and only in circumstances when multiple insurers are needed for 100% of the risk and only if eighty percent (80%) of the risk is placed with approved Nonadmitted or Admitted insurers and when unlisted insurers do not represent a disproportionate portion of the lower layers of coverage. Detailed Gap insurer placement conditions and requirements can be found at California Insurance Code Section 1765.1(k).
Additional Considerations
First and foremost, it must be understood in most states, it is required by law that every insurance broker endeavor to place each insured with an Admitted insurer. Nonadmitted insurers write risks that Admitted insurers cannot or will not write. Some states such as California and Florida have specific procedures that must be followed if insurance is placed with a Nonadmitted insurer.
Policy forms and endorsements reviewed and approved by any department of insurance do not guarantee that they are better or more broad than coverage procured from a Nonadmitted insurer.
Any state insurance guarantee fund, if applicable, is likely much lower than the minimum insurance limits required.
Finally, apart from California and select other states, there is no uniform way to determine if an insurer is admitted in any particular state.