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There are times when the coverage you need is available exclusively from a nonadmitted carrier. What’S the difference between admitted and nonadmitted carriers, and what are the advantages and disadvantages of each? Should you be concerned if a carrier is not admitted? 

Admitted Carriers:  An admitted carrier is one that follows guidelines set forth by the state and is therefore licensed in the state or country in which the insured exposure is located. Of course, these guidelines vary from state to state, and some are more stringent than others. The obligation to follow state regulations and submit rates to a state’s department of insurance limits the flexibility of the insurer. If an admitted carrier becomes insolvent, the state guarantee fund steps in to pay out claims and premium remuneration where applicable.

Nonadmitted Carriers:  It’s a common misconception that nonadmitted is synonymous with nonlicensed. In reality, nonadmitted carriers do not have rates filed with the state and are not as highly regulated, but this also means they are not protected by state funds. They are sometimes able to offer better rates, and these carriers can base price on specific exposures. Certain complex risks require the use of nonadmitted carriers because the conventional insurance marketplace fails to provide adequate coverage. However, in the case of insolvency, the state will not pay the carrier’s outstanding claims and premium remuneration. 

Judging Financial Strength:  Since a nonadmitted carrier doesn’t guarantee payout from the state in the case of insolvency (as an admitted carrier does), one of the most important things to consider when purchasing coverage through a nonadmitted carrier is its A.M. Best rating, which rates a carrier on financial strength and size based on policyholder reserves. As long as you are aware of market conditions and are sure the carrier is reputable, buying coverage from nonadmitted carriers can be beneficial in several ways: they often provide lower rates, absolute control over coverage terms and coverage unavailable through admitted carriers (including specialty risks, risks that are unusual or those that are unusually large). 

Choosing Prudently:  It’s important to note that nonadmitted does not mean that an insurer is not regulated – many states do regulate nonadmitted insurers. In fact, many nonadmitted carriers are actually admitted carriers in other states. Nonadmitted carriers intentionally opt out of filing rates with the state not necessarily because they are unable to comply, but because doing so provides the advantages mentioned above. On the other hand, just because a carrier is admitted doesn’t mean it is financially solvent. Because of state restrictions on rates and forms of coverage, admitted carriers’ payouts may increase faster than permitted premium increases in certain classes of business, leading to financial instability.

When making your choice of insurer, you should not only ask yourself whether the carrier is admitted or nonadmitted, but also whether it is financially capable of paying claims in the event of an accident.