There are benefits to admitted and non-admitted insurance carriers in today’s market depending upon the circumstances. Admitted carriers are licensed by the state and must comply with their state’s regulations, which verify policy forms, rates and requirements. Non-admitted insurance carriers, also known as surplus lines carriers, are not licensed or regulated by the state insurance department and typically provide more flexible coverage for risks that are considered high-risk or hard-to-place.
There are pros and cons to both options. With admitted insurance companies, the state can guarantee coverage on a claim if the insurance company fails to pay, whereas there is no such protection with a non-admitted carrier.
The state insurance commissioner will require three declinations from admitted carriers before allowing an excess and surplus product to be issued; however, you should not place insurance with a non-admitted insurer solely for obtaining a premium less than the lowest premium offered by an admitted carrier.
Sometimes you need a more flexible coverage option, particularly if your client is exposed to unique – or very specific – risks like owning a physical business location in regions that are vulnerable to tornados, hurricanes or other natural disasters.
What’s the Best Option for Your Client?
In short, it depends. The added protection of admitted carrier insurance is a clear benefit; however, it comes with a complicated and somewhat time-consuming process that requires the carrier to make sure that all of the rates and forms are compliant with state recommendations and regulations.
But sometimes a law firm needs to consider a non-admitted insurance carrier under certain circumstances, particularly in the following situations:
High-risk practice areas: If your client specializes in high-risk practice areas such as intellectual property, securities, or medical malpractice, it might be challenging to find coverage from admitted carriers. Non-admitted carriers often have more flexibility in underwriting and can provide coverage for these specialized areas.
Claims history: If the law firm has a history of claims or malpractice lawsuits, admitted carriers may be reluctant to provide coverage or charge significantly higher premiums. In such cases, a non-admitted carrier might be more willing to offer coverage, although the premiums are likely to be higher.
Unique risk profile: If the law firm has unique risk exposures that traditional insurers are unwilling to cover, such as providing legal services in high-risk jurisdictions or engaging in complex international transactions, a non-admitted carrier might be more a better option when it comes to underwriting unique risks.
Coverage limitations: If the law firm requires coverage beyond the standard policy limits or specific endorsements tailored to their practice, non-admitted carriers may offer more flexibility to customize coverage to meet the firm's needs.
Market conditions: In some cases, the insurance market may be experiencing a hard market cycle, with limited availability of coverage from admitted carriers or significant premium increases. In such circumstances, non-admitted carriers might be a viable alternative to secure coverage.
The Bottom Line
Understanding the key differences between non-admitted and admitted insurance carriers is just one way to help your client make the best insurance decision for their business.
Despite which option they choose, you must advise them to find a carrier with a strong A.M. Best rating. From staying current on underwriting and pricing trends with numerous A-rated insurers, Vanguard Specialty can match your client with the best coverage for them.
As a Managing General Agent with admitted and excess & surplus markets, Vanguard Specialty brings niche solutions to the insurance industry. Led by a former corporate attorney with more than 20 years of experience in professional liability insurance, we understand the unique risks and coverage requirements for today’s lawyers and small law firms.
To learn more, contact Chris Astorga, Program Manager at Vanguard Specialty at Chris.Astorga@vanguardspecialty.com or 813.999.8090.