More businesses are finding fewer insurers willing to write their policies for certain types of coverage that are seeing rapidly escalating claims costs, particularly in some liability lines as well as property insurance in areas with exposure to natural catastrophes.
When no insurers that are licensed in your state are willing to write a policy, we as your agent have to go to another market made up of insurance companies that are not licensed or regulated by your state government. It’s called the surplus lines (or “non-admitted”) market, and it can be a valuable alternative for insurance buyers.
As insurers get more selective writing some risks, it’s important for you as an insurance buyer to understand this market.
It is legal in every state for an unlicensed (non-admitted) insurance company to sell coverage. We can access those insurance companies as well by working with specially licensed brokers who are regulated by the state.
Unlike standard insurance companies, non-admitted companies do not have to obtain approval from state regulators for the policy forms they use or the rates they charge.
Why use a non-admitted carrier?
Why would someone buy insurance from an unregulated company? Because it might be the only one offering coverage for your type of risk. Non-admitted companies insure businesses that standard insurers avoid, such as:
Business in sectors where the cost of claims is suddenly rising, resulting in fewer licensed insurers willing to write policies.
Businesses and industries with histories of frequent or large claims.
Businesses with the potential for very severe losses, such as amusement parks or manufacturers of power tools.
New companies.
Homes and commercial properties that are vulnerable to extreme events such as hurricanes and wildfires.
Properties that require very large amounts of insurance.
What non-admitted carriers can do
State regulators limit how much standard insurance companies can charge in premiums. They will not offer coverage if they believe they cannot charge enough to make a profit.
Meanwhile, non-admitted companies can charge what they need to, so they are willing to insure these accounts. They can also quickly and easily introduce new types of insurance that businesses need.
Some types of policies that are standard today, such as cyber insurance and employment practices liability insurance, got their start in the non-admitted market.
State laws typically permit a broker to obtain coverage from a non-admitted insurer only if they cannot find coverage from admitted insurers. A broker cannot use a non-admitted insurer just to get a lower premium. Admitted insurers can only be used when the coverage is not available from the admitted insurers.
Risks
There are risks associated with non-admitted insurers. State insurance departments do not regulate or supervise non-admitted insurers. State back guarantee funds are not available for non-admitted insurers which go insolvent.
Your broker can mitigate the risks for non-admitted insurance. First, many states have a list of approved non-admitted insurers. Brokers should only use insurers on these approved lists.
Second, many non-admitted insurers are owned by large insurance holding companies. Travelers, Nationwide, Liberty Mutual and other well known insurance companies have subsidiaries that are non-admitted in some states. Use of these subsidiaries is safer than stand-alone non-admitted insurers.
Lastly, non-admitted insurers are rated by AM Best as well. Brokers should ensure the non-admitted insurers meet the size and quality threshold they establish for their admitted insurers. Because the guarantee funds do not respond, financial size and strength are important for non-admitted insurers.
The takeaway
Despite the risks, the non-admitted market serves an important function, giving buyers a place to get needed coverage that would be otherwise unavailable.
Those who think they may need to tap this market should consult with us to find the right coverage at an acceptable price.
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