Non-Admitted Insurance: Pros & Cons of Surplus Lines

Most people are insured through admitted insurance companies. This means buying a policy from an insurance provider that is licensed by the state. However, people with special cases also have non-admitted insurance options if they can’t obtain standard insurance coverage. 

Insuring yourself with a non-admitted insurance provider has its advantages and disadvantages, but it all depends on your needs. First, let’s talk about what getting non-admitted insurance means.

What Is Non-Admitted Insurance?

Non-admitted insurance, also called excess and surplus (E&S) insurance, doesn’t follow the same criteria in coverage, rate setting, and underwriting as admitted insurance carriers. 

Just because the insurance carrier isn’t licensed in the state, it doesn’t mean that they’re not allowed to operate in that location. Many states allow surplus lines insurers to conduct business for cases that admitted carriers couldn’t handle. 

Non-admitted insurance applies to the following products:

  • Home insurance for high-risk areas (e.g., homes in Fire Hazard Severity Zones or the Tornado Alley)
  • Insurance for non-US citizens
  • Insurance for people who failed to meet standard underwriting criteria
  • Specialty line insurance (e.g., high-value home insurance or professional liability insurance)

Perks of Non-Admitted Insurance:

The main advantage of E&S insurance is that it allows states to extend insurance coverage to high-risk markets. People with conditions that make it difficult for them to get admitted insurance coverage can still receive the protection they need. 

The FAIR Plan insurance, for instance, is typically available through non-admitted insurers. This state-mandated program provides insurance to properties in high-risk areas. Standard insurance companies usually refuse such clients because the risk can negatively impact their profitability. 

Non-admitted insurance carriers also have more freedom and creativity in the policies they offer, since they’re not subject to rating regulations. They can adapt the coverage according to the needs of the client.

Another perk to getting E&S insurance is that these carriers have more experience in high-risk cases compared to standard insurers. They know how to handle large losses and can provide valuable insights to their clients.

Disadvantages of Non-Admitted Insurance

Admitted carriers are state-regulated and are backed by the government in case they experience a financial fallout. It protects policyholders from the potential bankruptcy of their insurer.

Non-admitted insurers, on the other hand, don’t have this government-backed support. This means that policyholders might not recover their claims if the insurance company bank goes bankrupt. This condition is the biggest disadvantage of surplus insurance.

Another drawback to choosing this option is that if a policyholder suspects that their case was mishandled, it can be difficult for them to escalate their concern to the state insurance department.

Also, the rates of a non-admitted insurer may be more expensive than a standard carrier. It’s understandable since they need the financial cushion to take on high-risk clients.

Whether you’re choosing an admitted or non-admitted insurer, always check the company’s financial stability first. It will help assure you that the carrier can afford to handle claims and losses.

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Midlands is a managing general agent, wholesale broker, program administrator, and insurance services provider. Having been in the industry for over 25 years, we provide protection to a broad spectrum of risks, including contractors & construction, transportation, property, employers’ coverages, and hospitality.

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