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For certain types of insurance, many standard "Main Street" carriers will not offer coverage. In this case we have to go outside the mainstream to what are known as non-admitted carriers.
An "admitted carrier" is subject to Insurance Commissioner rate and form approval, and may be subject to assessments for state pools. "Non-admitted" carriers may conduct business in the state but are not subject to such.
One benefit of state regulation is regular review of admitted companies’ books to check their financial health. If a regulator seizes a company or finds it insolvent, policyholders may access the State “Guaranty Fund,” a backdrop of financial protection. No such protection exists for non-admitted carriers. Reviewing the financial condition of the company is an important item to pay attention to.
One of our customers has a highly specialized contracting business. When we went to shop their insurance we had offers from both an admitted and a non-admitted carrier with similar pricing and terms. The non-admitted carrier was a Lloyd's of London syndicate with strong financials. The admitted carrier was Hanover Insurance, an A-rated company located in Massachusetts. We recommended the latter not least of which because we are more familiar with their forms and can have direct conversations with underwriters. Most non-admitted carriers offer more restrictive coverage, so examining exclusions is important. While the ultimate decision is up to our customers, we recommend the admitted carrier for up to a 10 to 20% difference in cost. Here the cost difference was negligible so while we shared the Lloyd's offer, our recommendation was to select Hanover.
Often there is no choice. For specialized lines of insurance including professional liability and certain businesses’ general liability, the only markets available are those where companies can customize products beyond what state regulators wish to review. Thus even when there is no choice, review of exclusions is important. To purchase this coverage the broker and policyholder must sign an affidavit stating that they understand the differences.
Also, policyholders of non-admitted insurance pay a 4% insurance tax which goes to the Commonwealth of Massachusetts.
Generally speaking, given a choice, always select a highly rated admitted carrier. If not available select the highest rated non-admitted carrier with policy terms that meet your needs. Be sure to examine these issues carefully with your existing broker, and it is always a fair to ask, “Are there any other options?”
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