Credit: Doug Boehm

With businesses looking to save money, it may be tempting to cut corners on spending for insurances. “Brokers are more often than in the past utilizing non-admitted carriers,” which have less expensive premiums than admitted carriers (see “Agent vs. Broker,” below), says Mark Leininger, an insurance agent working exclusively with general contractors at NEK Insurance, in El Cerrito, Calif. But that’s not necessarily the right move. You should know the difference before purchasing insurance.

Admit ONE

Admitted insurers have many more rules to play by than non-admitted insurers. Hence, they cost more. Admitted insurers must:

  • File every policy form and endorsement with the department of insurance in each state they sell their policies.
  • Have their forms approved by the department of insurance; changing the form is a violation of the law.
  • File a rate plan for the various exposures and show how and why they might deviate from that rate subject to the scrutiny of the department of insurance. Violators are subject to penalties.
  • Pay into a guaranty association, which will pay claims for policyholders when an admitted carrier goes bankrupt.

Since admitted carriers are regulated by the department of insurance, consumers have an advocate to step in for them free of charge if there’s a claim denial that is disputed by the consumer. The regulations, Leininger says, “create a standard by which the insurer has to stand by.”

Agent vs. Broker

An agent is an agent of the insurance company — an extension of that company within certain parameters. Agents have the ability to quote, bind coverages, issue certifications of insurance, and add or delete vehicles.

“These authorities allow [an agent] to provide a higher level of service,” says insurance agent Mark Leininger, who is both agent and broker. “[Agents] have a direct relationship with company personnel if there’s a need to intervene on behalf of the policyholder.”

A broker — usually a retail broker — is who the consumer buys from. He represents the consumer/policyholder and not the insurer/insurance company. “This seems attractive in that he’s held to a higher standard of care because he represents the consumer,” Leininger says.

Unfortunately, it’s a more “convoluted” distribution process since the broker traditionally works through a middleman or wholesaler. Once that wholesale broker receives an application, he sends it to multiple insurers and then lets the retail broker know the options available to that retail broker. The consumer doesn’t have a direct relationship to the carrier, and wholesalers usually deal with non-admitted carriers who most often don’t have personnel or infrastructure in every state. —S.F.

Non-admitted insurers are unregulated. They don’t file policies and forms. “They use ‘manuscript rates and forms,’ which are not standardized by the Insurance Service Office,” Leininger says. “Generally they are written in such a way as to provide less coverage than the usual standard policies.”

Non-admitted insurers also don’t file their rates and are not subject to regulation on their premium charges. There is no recourse or assistance available to the policyholder from their state’s department of insurance. If the policyholder ends up in court, it’s at their own expense. If the carrier goes under, the policyholder is without coverage for claims and defense of a lawsuit.

More Than Price

Though they sound dubious, non-admitted carriers are perfectly legal, Leininger says. They exist because sometimes an admitted carrier won’t write coverage for something it feels is too risky. Many large companies have a mix of both non-admitted and admitted carriers under their umbrella.

The important point is that your agent is required to tell you the difference between and advise you about the two types of insurers. Often this doesn’t happen and a consumer will unknowingly buy less coverage.

“Salespeople may rely on price alone to sell products,” Leininger warns. “The person looking for a deal is often the victim of this practice. They’re looking only at price and not at coverage and the integrity of the carrier. Be sure to have your agent or broker explain what you’re getting.”

—Stacey Freed, senior editor, REMODELING.