Admitted vs. Non-Admitted Insurance Products: 5 Commonly Asked Questions
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?
An admitted insurance product is one that 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. In the event that 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.
On the other hand, non-admitted insurance products are those that have not been licensed and approved by a DOI. These 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 anyways, 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 is 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 and 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. But 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 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. In order 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.
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