Admitted Vs Non-Admitted – Whats the Difference?
As one of the premier construction brokerages in New York City, we have interacted on a high level with many big construction companies. Our interactions and conversations are not just with project managers or superintendent’s but rather we refer to owners, CEO’s and other very integral peoples of these large construction companies. Over the course of time, it has become apparent that there is a lack of understanding and knowledge within the construction industry regarding some of the basic fundamentals of insurance, which are applicable to all contractors alike.
Yet, contractors all over the globe are purchasing these policies year-in-year-out. While you may hate to admit it, there is no denying that insurance is a tremendous expense and a very integral, important aspect of running your business. The basic notion seems to be; this is an area which I have to leave up to my broker and just trust him that he is going to act appropriately on my behalf. While that notion is understandable, as a broker myself, I think there is a certain amount of awareness and understanding which is not only helpful but also necessary, especially when it comes to such an expensive and important purchase like insurance. For that reason I would like to present some basic key aspects for you to be aware of regarding your insurance policies.
Admitted vs Non-Admitted Carriers –
When purchasing a policy it’s helpful to know the difference between admitted and non-admitted carriers.
An admitted carrier is a company that has been issued a certificate of authority by the state and is approved by a state’s insurance department. (I.e. Travelers, Harleysville, Main Street America)
- The carrier must comply with all state regulations regarding insurance. (These rules were established and are overseen by the National Association of Insurance Commissioners.
- Due to this status, various fees and taxes won’t be applicable to you, thereby making your policy cheaper.
- If the carrier fails for some reason (I.e. claims after natural disaster depletes its reserves or funds) you have a guarantee that the state will step in and cover your losses
- If you feel your claim was handled improperly, you have the ability to appeal the decision to the State Insurance Department.
A non-admitted carrier is a company which has not been issued a certificate of authority by the state and does not have the approval of the state’s insurance department. These insurance carriers work through surplus lines brokers to provide coverage. (I.e. Scottsdale, Lloyds of London, Starr Companies)
- The carrier does not need to comply with state regulations regarding insurance
- If the carriers’ reserves are depleted and/or they run out of funds your claims are not guaranteed to be paid
- There is no ability to appeal a decision that the carrier makes.
Now while it may seem simple from the above information that an admitted carrier is better, it’s important to take into account a few more key aspects.
General Contractors often have a difficult time getting into admitted markets. Surplus lines/ Non-admitted markets are used when admitted carriers won’t quote the risk. If you can get into an admitted carrier than by all means that is where you should be heading, providing all other factors are equivalent. You should be sure to ask your broker if you have a chance of getting in with an admitted market prior to purchasing your policy.
Furthermore, it’s important to know that insurance companies are rated on a scale from A++ to F (Just like in school!) These rates are calculated by a credit rating firm called A.M Best which has been rating insurance carriers since 1906.
A non-admitted carrier with an A+ rating can be far better than an admitted carrier with a C or B rating.
So if you’re with a non-admitted carrier, relax! It’s possible this was the only option for you especially if you’re in the construction industry.
However always be sure to inquire and ask your broker questions!