Many consumers are confused by what it means for their insurance company to be non-admitted in the State of California. It is commonly thought that this means that a carrier isn’t licensed in the state. This is far from the truth! Of course they have to be licensed to sell insurance in your state, but Admitted companies have gone through the stringent regulatory processes of the state, and they must comply with the governance of the California Department of Insurance (DOI). The admitted carrier’s financials are reviewed by the State, and their rates and policy forms must be approved by the state Insurance Commissioner. They comply with this by becoming a member of the California Insurance Guarantee Association (CIGA). In becoming admitted this allows their insureds to be protected should they go belly-up, but only up to certain limits.
For instance, CIGA’s limit for paying out on liability claims is $500,000. So if a claim for $1,000,000 is filed against you, and your insurance carrier went broke, even if CIGA steps in, you could still be on the hook for the other $500,000. Almost all A rated carriers though, (including non-admitted carriers), are reinsured by another larger carrier. (Your carrier purchases insurance with another carrier to cover your claims in the event they can’t). So in this case, if your carrier goes belly-up regardless of their admitted or non-admitted status, the reinsurance carrier may step in before CIGA does.
By contrast, Non-Admitted companies have elected not to be authorized by the state DOI. Often mistakenly perceived as being “shaky” or questionable companies, these carriers intentionally opt not to be admitted in order to allow more leeway in pricing and coverage scope for policies they will write. Admitted companies may be unable to insure risks due to limitations on premium increases imposed by the DOI, where Non-Admitted companies can be very flexible and can act fast in order to keep up with market changes. This flexibility will often result in a customized coverage solution for complex policy placements or for those who operate businesses seen as higher risk by admitted carriers.
Just because a carrier is admitted, doesn’t mean they are more financially solvent. Sometimes just the opposite can happen, that because of the restrictions on rates and coverage forms, admitted carriers’ claim payouts could increase faster than allowed premium increases in certain classes of business. This could cause a carrier to find itself in financial trouble if they don’t have the freedom to increase premiums in order to keep pace with claims. My agency is careful to write business with carriers in good financial standing , and when in doubt, (because ratings can change quickly), we can look up their financial strength rating with independent rating bureaus like AM Best and supply this to you.
Admitted vs. Non-Admitted
So, now you understand, the question shouldn’t necessarily be “Admitted vs Non-Admitted?”, but “is this company financially capable of paying my claim in the event of an accident?”
It is important to work with an Agent/Broker you can trust, and always take the time to understand the full implications of the offered terms and conditions and know the status and standing of any insurer being considered for coverage.