Posted on May 17, 2014
When purchasing commercial insurance policies many business owners find themselves entering a whole new world of unfamiliar vocabulary and jargon. Two concepts commonly encountered are admitted carriers and excess or surplus lines. Understanding these terms will aid in properly evaluating insurance coverage so that more informed decisions may be made concerning property & casualty policies.
Insurance companies that are licensed by the state they are doing business in are known as admitted carriers. They are granted authority by the particular state to write policies for specific lines of insurance. Admitted carriers are regulated by the state with regard to rates and policy practices so as to protect consumers from illegal and unethical practices. Typically, most admitted insurance carriers must also contribute to state regulated guarantee funds that cover insurance companies that are unable to pay claims or become insolvent.
Excess or Surplus Lines
The excess and surplus lines market was developed to aid businesses that needed but were not able to purchase commercial insurance from regular admitted carriers. In some instances, these companies were new without any insurance loss history, had unique coverage needs or heavy claims that admitted carriers would not insure. Within the excess/surplus lines market, brokers and insurance companies are able to design customized insurance coverage and negotiate premium pricing.
Differences between Admitted Carriers and Excess/Surplus Lines
The primary difference between admitted and excess/surplus is licensing. The excess or surplus insurer is not state licensed like the admitted carrier; however, they are permitted to do business within the state. Often, excess/surplus lines carriers are known as non-admitted or unlicensed insurers despite the fact they are actually financially stable insurers. In fact, excess or surplus lines companies must submit their financial and business records to the state.
They are also unable to write insurance coverage that is available with admitted carriers, and most often, they may only write policies if it is rejected by a number of other admitted insurance companies. Another difference is that excess/surplus carriers do not follow the same rules and regulations as admitted companies.
The advantage of excess/surplus lines carriers is that they can be more flexible when it comes to rates and coverage for those seeking insurance.