Most people believe that the Insurance Companies are either admitted or non-admitted. This is a common misconception as Insurance Companies can provide both admitted and non-admitted policies and many of them have both.
The biggest difference between these two types of policies is whether or not you have access to the state’s Guarantee Fund. If you purchase an Admitted homeowners insurance policy and your insurance company goes insolvent, the state’s Guarantee fund will assist in paying your claim. With a non-admitted policy, you do not have this protection.
To obtain the Admitted status, insurance companies must provide the State Department of Insurance with all of their rates, policy documents, rules, etc., and all of those things are reviewed and either found to be in compliance or rejected with recommendations to be sent in again. It is a complex and slow process, but the intent is for the state’s insurance commissioner to confirm the products are in compliance with state regulations as a protection for the residents of that state.
While this definition can make admitted products appear to be more legitimate, that is not always the case. It is important to realize that the classification alone does not measure the overall quality of the policy or the stability of an insurance company.
Insurance companies offering Non-Admitted Insurance products are also referred to as “excess and surplus line carriers” and while their products are not regulated by the state insurance commissioners, they are regulated by the state surplus lines office in each state.
Remembering that the Admitted classification does not dictate the insurance company’s financial strength it is important for you to understand that insurance companies are rated by financial rating firms such as A.M. Best, Moody’s, Standard & Poor’s, and others, each using different rating codes. In this example, I will use A.M. Best who has been doing this since the early 1900s. They use a scale of A+ excellent to F in default when measuring the financial stability of a company.
Carrier #1 – Admitted Policy / A.M. Best rating of “C” (poor ability to meet their ongoing senior financial obligations. Credit quality is extremely vulnerable to adverse changes in industry and economic conditions.)
Carrier #2 – Non-Admitted Policy / A.M. Best rating of A- (entities that have an excellent ability to meet their ongoing senior financial obligations.)
If the quality of the policies are close to the same, you may very well decide to go with the Non-Admitted policy since the carrier appears to have stronger financials. If you go with Carrier#1 and they go under financially, you will then be dealing with the state guarantee fund folks to get your claims paid.
The bottom line is to do a little exploring and ask your agent for the financial rating of the companies as well as a comparison of the differences in the policies before making your decision.
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