What Is Non-Admitted Insurance?

If you’ve ever purchased a policy through a Non-Admitted insurance company, you might remember having to sign that two page form written in ALL CAPS.  Of all the insurance forms it’s easily the scariest. Why?  Because of the font, of course.

All caps makes you think that it must be something very serious and important.  If you’ve had to sign one – and ever wondered what it was – today’s your lucky day.

I will now explain the difference.

Insurance companies can be divided into two categories – Admitted and Non-Admitted.

Admitted insurance companies are backed by the state of California. (I’m writing from a California perspective because I live here, do business here, and am generally in a California state of mind).  Anyway, what that means is that if you have a policy through an admitted insurance company and 1) you have a claim and 2) during the processing and paying of that claim your insurance company goes bankrupt,  3) the state of California will step in and finish paying that claim.

If you have a policy through a Non-Admitted insurance company, it looks more like this: 1) you have a claim and 2) during the processing and paying of that claim your insurance company goes bankrupt, 3) the state of California does not step in and you do not get your claim paid.  (Your insurance company is bankrupt and can’t pay claims).

Easy enough to understand.

At this point you might be wondering, why would anyone get a policy through a Non-Admitted insurance company?  That’s a great question, and my answer is this: all things being equal, it is better to go with an Admitted insurance company.

Of course, rarely are all things equal.  It is sometimes impossible to get a policy through an Admitted insurance company, and you therefore have no other option than to go with a Non-Admitted.  About 5% of the policies written through Gillespie Insurance Services are Non-Admitted.

And here’s the takeaway at last: if you have to go with a Non-Admitted insurance company, make sure that 1) it is financially sound and 2) it is a large company.  Check A.M. Best for both measurements.  A.M. Best is an independent organization that rates the stability of insurance companies.  They rank financials A through F, and size I through XV (that’s 1 through 15 for you non-Roman numeral readers).   On the financials, don’t go any lower than an A-.  On size, it is a little more subjective, but don’t go lower than a VII.  You might be wondering why size is important.  Well, since a large company tends to have more cash and assets than a small company, a large company would be less likely to pay out more claims money than it can handle.  Conversely, a small company is more vulnerable to getting ruined by having to pay too many shock losses.

So in the end, given what you now know about Non-Admitted companies, what type of company would you rather be insured by?  An Admitted B rated, size I?  Or a Non-Admitted A+ rated, size XV?  I know where I’d rather be!