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Admitted vs. Non-Admitted Insurance: 5 Commonly Asked Questions

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By The Boost Team on Feb 24, 2023
7 min read
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In the world of insurance, there are two kinds of products: admitted and non-admitted. Simply put, admitted insurance products are those that are approved and regulated by the state, and non-admitted insurance products are those that are not—but this explanation can raise more questions than it answers.  

In this blog, we break down the major differences between admitted vs. non-admitted insurance products and answer some commonly asked consumer questions. 

1. What’s the difference between admitted and non-admitted insurance?

Admitted Insurance

An admitted insurance product has been licensed and approved by the Division of Insurance (DOI) in the state where it’s being sold. Each state’s DOI has requirements for everything from how much carriers can charge to what kind of coverages are offered to how the carriers communicate with customers. The process of getting a product admitted through this office—or even making changes to a product that has already been admitted—is lengthy and complicated for carriers. But in return, the carrier and its customers get some financial protection from the state. 

As a consumer, you can be sure that if a product is labeled as “admitted,” it has gone through all the necessary scrutiny of its policy requirements, language, and rates, and it meets your state’s DOI regulations.  If your carrier “goes under,” you will have an additional, state-funded safety net wherein debts can be paid by the state up to a certain amount. 

Non-Admitted Insurance

On the other hand, non-admitted insurance products are those that have not been licensed and approved by a DOI. These insurance products fall outside of the standard market for that particular state and, therefore, don’t meet its requirements. 

When a product falls outside of the standard market, it doesn’t mean that it’s covering an illegitimate risk or that insurance wouldn’t be helpful protection. It simply means that it’s a risk the state doesn’t want to cover. If an insurance carrier wants to sell that product anyway, they can—they would just need to sell it on a non-admitted basis. Being non-admitted allows these products to operate outside of DOI regulations and restrictions. This makes them much more flexible in what they can cover, but they also don’t receive the same financial protections from the state. 

Examples of non-admitted products include parental leave insurance or crypto wallet insurance. They don’t fall into the standard market insurance category that products like health insurance, home insurance, car insurance, or pet health insurance do, but they still offer important protection that people are willing to pay for. 

2. Are non-admitted insurance products entirely unregulated? 

This is an understandable and common misconception. When people hear that non-admitted insurance products aren’t licensed or regulated by the state, they might think that non-admitted products are entirely unregulated or even illegal. But this isn’t the case. 

Non-admitted products are legitimate insurance products that undergo their own forms of approval before going to market. While they don’t have to go through the intense approval processes with the DOI, the companies that create these products do need to submit articles of incorporation, a list of officers, and various financial and company information to the surplus lines office, which is run and regulated by the state.

Additional state guardrails for non-admitted products include taxes and licensing. All non-admitted products are subject to being taxed by the state and all agents who sell these products need to be licensed brokers in the state where they conduct business. 

In short, the state is definitely involved with non-admitted products, but the regulation of these products is significantly less intensive when compared to those of admitted products. 

3. Are admitted insurance products always the best choice? 

Because admitted products are “approved by the state” and non-admitted products are not, you might assume that admitted products are always the more responsible choice as a consumer-—but that isn’t always the case. There are many reasons why choosing a non-admitted insurance product could provide better protection than an admitted one. 

First, the distinction between admitted vs. non-admitted is largely administrative and doesn’t say much about the overall quality of the product or the stability of the carrier offering it. You might be in the market for home insurance, and there are both admitted and non-admitted options available, but the coverage of the admitted product doesn’t meet your needs. 

This is an especially common problem for people who live in areas with frequent natural disasters like fires or hurricanes: their risk is often outside of what an admitted product is built to cover, and so they may not qualify for the level of protection they need. In some cases, if your home is deemed too high-risk, you might even not be able to buy an admitted policy at all. Since non-admitted products are more flexible in what they can cover, you may be able to buy a policy that provides more robust protection from natural disasters (though it will likely cost more than an admitted product might).

Second, there are situations where you could benefit from insurance, but no admitted products exist to provide it. In these situations, non-admitted insurance products are the only option. For example, cryptocurrency is an increasingly popular market for consumers, but there are currently no admitted crypto wallet insurance products available. This can be a serious problem for crypto wallet holders because there are billions of dollars in cryptocurrency being held in online custody. Additionally, crypto theft and large-profile hacks are increasingly common, but less than 1% of consumer assets are insured.

There are some options for crypto institutions to have insurance, but even in those cases, it does not provide explicit protection for individuals. In the event of a hack, consumers can lose all or a portion of their holdings with no guarantee from the crypto institution that they will be reimbursed. The only way for an individual consumer to protect their cryptocurrency holdings would be through non-admitted crypto wallet insurance.  

4. How does state approval impact consumer policies? 

The distinction between admitted insurance products vs. non-admitted insurance products has an abundance of implications for insurance carriers, agents, and brokers, but the biggest impact that this difference has on consumers boils down to pricing and coverage options.

Because states aren’t able to set rates for non-admitted insurance, non-admitted policies usually cost more than comparable admitted insurance. Additionally, as a consumer, you may not get the same kinds of tax breaks as you could with an admitted product. However, one of the reasons non-admitted product costs often run higher is that they can have more robust options for protection and coverage than admitted products do.  

For example, if the state were to set a rate on accident & illness pet insurance and tell carriers they can’t raise rates on policies above a certain threshold, this would impact policies significantly. The state might also have more stringent rules that could impact your eligibility for coverage, such as age restrictions, breed restrictions, pre-existing condition restrictions, etc. For carriers to affordably meet the state’s requirements, they would have to limit the actual benefits of the coverage. 

A more affordable, admitted product might not be able to include certain protections, or might exclude certain pets entirely based on eligibility. A non-admitted product would cost more to buy, but would also have the flexibility to offer more coverage to more people. While an admitted product will be a good choice for many consumers, non-admitted options are important for the subset of people who aren’t a good match for what admitted products can offer.

5. What happens if an insurance carrier can’t pay its debts?

The biggest benefit for admitted products is that they are backed by the state’s guaranty fund in the event of a carrier’s insolvency. Insolvency is when a carrier is unable to pay its debts—maybe the carrier underwrote too much risk, or a global event caused customers to max out the carrier’s borrowing capacity. Insolvency is relatively rare, but it does happen occasionally, and the effects are different depending on the kind of product. When this happens to carriers with admitted insurance products, the state will pay the carrier’s claims up to a certain amount. 

This can give consumers peace of mind because it ensures that costs won’t come back around to them. You could confidently pay your monthly premium on your admitted insurance policy knowing that if your carrier can’t cover the cost of your claims, the state will.  

On the other hand, if a carrier were to become insolvent, any of their non-admitted products would not be protected by the state. For consumers in this situation, the financial losses that should have been covered by your insurance policy will most likely come back to you, and you could be tied up in legal disputes during the liquidation of the carrier. 

As a consumer of insurance, it is always important to do your research on your carrier and understand your insurance policy. You can check sources like A.M. Best Ratings—or other similar rating agencies—that can help you make sure a potential insurer is financially solid and worthy of your trust. 

Knowing the difference between an admitted vs. non-admitted insurance product can help you to make a more informed decision, ensure that you are getting the biggest bang for your buck in terms of coverage, and help you know what to expect if your insurance carrier “goes under.” After reading our breakdown of admitted vs. non-admitted insurance questions, we hope you’re feeling more comfortable with the topic. 

Boost makes it easy for anyone to understand the world of insurance or to get started offering embedded insurance themselves. Contact us to learn more.

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Selling Non-Admitted Insurance Products vs Admitted: What's the Difference?
May 12, 2023
When it comes to insurance, there are two major regulatory types: admitted and non-admitted Admitted insurance refers to insurance products that have been licensed by the Division of Insurance (DOI) in the state where they are being sold and are subject to state regulations. In addition to meeting state standards on things like price, coverage, and packaging, admitted insurance products offer additional protection to their end buyers - if the carrier fails, the state will pay a certain amount of its outstanding claims. Non-admitted insurance, on the other hand, refers to products that are not licensed or approved by the state DOI, and do not have the same financial protections from the state. There can be many benefits to offering non-admitted insurance products, but because they aren’t regulated by the state, there are unique responsibilities that agents, brokers, and insurance have to keep in mind. In this blog, we will break down 3 important areas where non-admitted insurance products differ from admitted insurance products, and explain the implications for agents and brokers.  By nature, non-admitted insurance products exist to cover hard-to-place risks that most admitted products won’t cover — whether that be insuring a barrier island home that is frequently at risk of flooding or covering Beyoncé’s voice in the event of injury.  To sell non-admitted policies that cover these unpredictable, difficult-to-price, high-risk situations, regulations require an agent or broker to first get several declinations from separate admitted insurance carriers. The exact number can vary by state, but the standard is typically three declinations.   A declination is a written refusal of an admitted insurance carrier to issue an insurance policy. To get one, the agent or broker will have to fill out an application or written request for coverage to each insurer, and then wait for the insurers to return documents that decline each request. This process ensures that the agent or broker has done their due diligence in attempting to place the risk in the admitted market, and that they understand and accept responsibility for offering a non-admitted policy. This process of getting three declinations often has to be done for every policy sold. Going back to our examples: say an agent goes through the usual process to find an insurance policy for their client’s island home: they make inquiries to three carriers for admitted products, are declined three times, and eventually place the risk with a non-admitted product. If their client’s next-door neighbor then calls and asks the agent to find them a policy as well, the agent would generally have to once again try for three different admitted products before moving on to the non-admitted market.  There can be state-specific nuances to the compliance requirements regarding declinations. In some states, there may be exceptions to the declination rule if no equivalent product exists in the admitted market. For example, crypto wallet insurance is a first-of-its-kind insurance offering, and only currently exists as a non-admitted product. In some states, this means the agent or broker selling it can be absolved of having to do the due diligence of getting three declinations from admitted carriers.  Some states also allow for getting the declinations once, and then using it for all similar risks going forward. In that case, the agent in our above example wouldn’t need to get three new declinations for the neighbor’s house - the risk would be similar enough that they could use the declinations they had already received as justification for placing their client with a non-admitted product. Every agent and broker needs an insurance license to sell insurance products, and most will need more than one. Insurance is licensed at the state level, so a license is required for each state you intend to sell in. There are also different types of licenses required for selling admitted and non-admitted products.  Here are the four types of licenses an agency will need to sell non-admitted insurance products. Current agents and brokers will already have the first two license types but may need two additional license types to start selling non-admitted products. The basic license required for selling insurance is known as a “producer” or “agent” license. This is obtained by completing a pre-licensing course and passing the required tests in a particular state which allows an individual to sell insurance in that state.  An agency or brokerage will also have to attain an “entity” or “agency” license. This license allows a company (rather than an individual) to sell insurance within the resident state.  Selling non-admitted insurance products requires an additional non-admitted license. In most states, the non-admitted license will have an entirely separate license number from the individual license.  Finally, selling non-admitted insurance products requires a surplus lines license. While non-admitted products don’t have to go through the intense approval processes with the DOI, the companies that create these products do need to submit articles of incorporation, a list of officers, and various financial and company information to the surplus lines office, which is run and regulated by the state. Any agents or brokers who wish to sell non-admitted insurance policies also need to be licensed by this office.   Both admitted and non-admitted insurance products are subject to taxes in the states where they are being sold. While every state has its own taxes and fees, there are some standard differences between how admitted and non-admitted insurance products are handled across the board. The major differences boil down to how and by whom taxes and premiums are calculated and collected.  For admitted insurance products, taxes and fees are generally included in the premium, and are calculated and remitted by the insurance carrier. The broker or agent selling the product doesn’t usually need to concern themselves with taxes for these products, since those are the carrier’s responsibility.  Non-admitted insurance, on the other hand, is not so simple. For these types of insurance products, the premium calculations are handled by the insurance carrier, and the taxes and fees are calculated separately by the broker or agent. The broker or agent is then responsible for collecting those taxes and passing the money on to the appropriate state government(s). The process goes something like this: The insurance carrier determines the premium amount and sends that information to the agency or brokerage, along with the policy documentation and a state disclosure form declaring that the non-admitted product complies with state regulations. From there, a broker or agent has to calculate Excess and Surplus lines (E&S) tax on top of the premium and any surplus lines fees. Many agents and brokers also add an administrative fee for non-admitted products to help offset the greater administration costs. Once the total amount is calculated, it can be shared with the policyholder.  Once a policyholder makes their payment, the broker or agent will have to send the premium payment to the carrier, remit the taxes to the state, send fees to the surplus lines office, and take the administrative fees for themselves. For this process, agents and brokers typically use a state-specific surplus lines agent management system (AMS) to file the product, policy, policy number, effective date, expiration date, line of business, E&S carrier, and the premium amount. The AMS will also calculate and reconcile the taxes, and then that state will send them a bill at the end of the month, quarter, or year (depending on which state they are selling in) to settle the remaining taxes. In short, non-admitted billing is much more operationally burdensome for brokers and agents to support versus admitted, which is why adding on an additional administrative fee is very common.  Non-admitted insurance products are an important part of the insurance market and can help provide vital protection for hard-to-place risks. Being equipped, informed, and licensed to sell these products can open up lucrative new lines of business for agents, brokers, and insurtechs. If you want to learn more about selling non-admitted insurance or getting your insurance licenses through Boost’s licensing-as-a-service, contact us.
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Offering Insurance: Build, Partner, or White-Label?
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So you’ve heard that the insurance market is set to pass $700B gross written premiums this year and that changing consumer expectations are creating big opportunities for companies that haven’t traditionally offered insurance. Now what? If you’re ready to get started with offering insurance, your options fall into three general buckets: build and sell the insurance product yourself from scratch, partner with an insurance company to offer their product, or work with an insurance-as-a-service provider to offer white-label insurance products. So, which is right for your business? We’ll go through what’s involved with the top 3 options, as well as some pros and cons to be aware of. Your first option for offering insurance to your customers is also the most intensive: you can create the insurance products you want to offer, in-house. With this option, you would essentially create a business within a business: an insurance agency that operates as part of your company. 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