How Admitted Insurance Works

State insurance regulations require companies permitted to provide admitted insurance services to adhere strictly to such rules; the National Association of Insurance Commissioners formulates the principles. In situations where the companies do not do so, it usually behooves the government to intervene by making claims payments on their behalf. In contrast, no backup protection mechanisms of this kind are in place for non-admitted insurance agencies. When customers purchase insurance coverage from an admitted agent, they usually don't have to pay fees and taxes attached to those policies.

Generally, admitted insurance policyholders reserve the right to appeal directly to their state's insurance department whenever they believe the agents mishandled the policy. Essentially, the state permits specific admitted insurance companies to carry out their business. Any insurance company wishing to be recognized as an agent in a particular state must first ensure it complies with all applicable standards. Moreover, the state requires such companies to file their rates with the relevant state agencies before receiving approval.

When an admitted insurance company faces liquidation, the relevant state's guaranty fund usually takes over the processing and payment of all current and future claims. However, the state fund is not obligated to settle all claims in full- this is because the existing regulations limit the amount such a fund can pay in claims. In a situation where a company's revenue threshold is high, the company may be deemed unqualified for such state coverage; furthermore, in cases where the guaranty fund is already handling several large liquidations simultaneously, it considerably restricts the coverage the fund can offer to such claims. In these circumstances, the policyholders typically lose out since it takes time to process anything, and the guaranty fund cannot cover the amount they lost.

Real-Life Example of Admitted Insurance

The Arizona Insurance Company sought to become a legally recognized carrier (duly permitted to offer admitted insurance coverage within the state). First, the company filed its application with the Arizona State Insurance Commissioner. The company stated that it already complied with all other National Association of Insurance Commissioners (NAIC) regulations in the application. The company also ensured all its rates and forms complied with the state regulations and recommendations.

Next, the Arizona State Insurance Department officials perused through the documents the company forwarded- the law required them to ascertain the authenticity of all documents and confirm compliance (including all claims handling) before issuing the relevant certificate. Having scrutinized the documents, the officials certified the details in the application as correct.

Having confirmed that the Arizona Insurance Company complied with all procedural requirements, the Arizona State Insurance Department finally approved the company's request and the product. At this point, the Arizona Insurance Company attained the admitted insurance company status. In addition, the company signed a commitment with the State officials pledging to remit a percentage of its annual income earnings derive from such product sale to the Arizona insurance guaranty association.

Significance of Admitted Insurance

A significant benefit of customers working with an officially admitted agent is that the law obligates the state to service an insurer's claims. In case the company goes insolvent, the state pays up to state-specified limits. When a non-admitted company becomes bankrupt, it does not enjoy such benefits.

Note that some non-citizen residents of the US cannot purchase admitted insurance from the licensed carriers; instead, they can only get a policy cover from the non-admitted carrier. Another benefit of working with a certified admitted carrier is that you can avoid paying various fees and taxes and save the money that you'd otherwise pay if you sought the services of a non-admitted carrier. Overall, with admitted carriers, you can enjoy a standard insurance policy that's unavailable for other providers.