Nonadmitted insurer
Nonadmitted insurer - an insurance company that does not have a license to operate in a particular US state (NAIC 2011, p.4). The difference between nonadmitted insurer and admitted is that first one are more risky, but due to the price flexibility, they can attract customers with lower prices. Often, it is better to make assumptions regarding financial risk of the insurer by its financial ratings, not by its status in a certain state (admitted or nonadmitted).
Pros and Cons
Non-admitted insurance companies are not a part of financial competence regulations, which are applied to admitted insurance companies. Furthermore, these companies are not allowed to participate in any kind of guarantee supports, which are created in each state by addmited insurance companies. Therefore none of the claims and compensations will be paid to insured, if such non-admitted insurer will become a bankrupt (Todd M. 2012, p. 193).
However, non-admitted insurers have more flexible pricing policy. This happends as these insurers are not obliged to submit their rate policy to the state the're operating in. Therefore, these companies are more likely to insure from incidents with high risk, such as:
- Earthquake;
- Hostage situation;
- Tactical operations;
- Bomb threads etc.
Furthermore, nonadmitted insurers can provide you insurance for special risks (as a professional liability insurance), as admitted insurers usually simply are not able to afford it (Burling J., Burling J. M., Lazarus K. 2012, pp. 667,669).
Surplus Lines Insurance
Nonadmitted insurers can participate in very limited range of insurance operation's in each state they provide their services. Such insurance companies mostly participate in surplus lines insurance business, as most state's regulations allow brokers to place their deals with non-admitted insurers (Condon B., Sadka J., Sinha T. 2003, p.156).
Although, it is not forbidden to have your deal insured with an non-admitted insurer, it is still higly recommended to avoid unnecessary risk. You can always request a copy of insurer's annual statement, which is filed yearly. Also, before signing the deal with your broker, you have to ask him/her about a disclosure statement regarding non-admitted insurance. As in California and majority of states, your signature is required before the selling of the insurance. If your broker doesn't know or doesn't want to share any information regarding the statement, it is recommended to re-avaluate and maybe end your business relations with such broker (Todd M. 2012, p. 193).
The National Association of Insurance Commissioners (NAIC) in 1994 proposed a Nonadmitted Insurance Model Act (last amendment - 2010). It's purpose to normalize treatment and business cooperation with nonadmitted insures, but more important - to obligate companies to have more secured relations.
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References
- Burling J., Burling J. M., Lazarus K. (2012). Research Handbook on International Insurance Law and Regulation, Edward Elgar Publishing, Cheltencham, pp. 667,669;
- Coondon B., Sadka J., Sinha T. (2003). Insurance Regulation in North America: Integrating American, Canadian, and Mexican Markets, Kluwer Law International, The Hague, p.156;
- Todd M. (2012). Physician Integration & Alignment: IPA, PHO, ACOs, and Beyond, CRC Press, Boca Raton, p.193;
- The National Association of Insurance Commissioners (2002). Nonadmitted Insurance Model Act, NAIC, Tennessee, p.2-5;
- The National Association of Insurance Commissioners (2011). Nonadmitted Insurance Reform, NAIC, Tennessee, p.4.
Author: Veronika Tomilova
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