A Consumer’s Guide to Non-Admitted Insurance Companies
An admitted insurance company (also known as a “licensed” or “authorized” company) is one that holds a license issued by the insurance regulators in a particular state. (The Department of Financial Services regulates insurance in New York). A non-admitted company (also known as an “unlicensed” or “unauthorized” company) does not hold a license for that state. Nevertheless, it is legal for a non-admitted company to sell insurance there. In New York, non-admitted companies must meet financial strength requirements before brokers may obtain insurance coverage from them.
The New York State Department of Financial Services does not approve or disapprove policy forms or premium rates that non-admitted insurance companies use. Instead, the department regulates the brokers who obtain coverage from these companies. The brokers, known in New York as “excess line brokers,” must comply with state laws and regulations that limit their ability to use non-admitted companies. For example, in most cases, at least three admitted companies must reject an application for insurance before the excess line broker can obtain coverage for that client from a non-admitted company. The broker must give the buyer a clear notice when he obtains coverage from a non-admitted company.
Non-admitted insurance companies are neither good nor bad. There are advantages and disadvantages to purchasing coverage from them. They may offer types of coverage that licensed companies do not offer. They may also charge much higher premiums than their licensed competitors can for the same coverage. The higher premiums may entice them to insure business operations that licensed companies do not want. However, their policy forms may reduce or eliminate coverage that a particular business needs.
In addition, state guaranty funds normally do not protect buyers of policies from non-admitted companies. A guaranty fund is a pool of money, required by state law, which protects an insurance buyer in case the company runs so low on money that it becomes unable to pay claims. All admitted insurance companies must pay assessments to maintain the guaranty fund. In New York, most property and casualty insurance policies are covered by the Property/Casualty Insurance Security Fund. This fund pays up to $1,000,000 for a claim left unpaid by an otherwise covered insurance policy. However, by law the fund cannot pay for claims left unpaid under a policy issued by a non-admitted company.
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