Today’s marketplace involves more than just looking for the best price for your insurance coverage. An insurance policy is a binding contract between you, the insured, and the insurance company. You want to be sure that you are purchasing this contract from a carrier that can deliver exactly what they say they will in the case of a loss. This Prescription will provide important information needed in making a sound decision when selecting a carrier.
Admitted v. Non-Admitted
Insurance companies fall into two categories; admitted (standard) or non-Admitted (non-standard). There are some carriers that are considered both, depending on the line of coverage being written in a given state. An admitted carrier is licensed to do business in the state it is operating in, and is regulated by that state’s Insurance Department. An admitted carrier must file their rates and policy forms and cannot deviate from what has been filed. Policy holders of admitted insurers are protected, to some degree, against the insolvency of the insurer by state guaranty funds. Guaranty funds take over payment of claims that would have been paid by the insurer had the insurer not become unable to pay their debts. The maximum benefit paid in the majority of states, including Georgia, is $300,000 per claim.
A non-admitted carrier is not licensed in the state it is operating in, and is not required to file their rates & forms. This allows the company to be flexible in the type of risks it can write, as well as the pricing it can offer for that risk. Even though a non-admitted carrier is not regulated by the state it is operating in, the carrier still has substantial rules and requirements. Since a non-admitted carrier is not subject to state regulation, the insurance department does not have an effective way to collect premium taxes like they do with admitted carriers. For this reason, the states require an agent/broker to collect a Surplus Lines Tax since the agent/broker is licensed in that state. The Surplus Lines Tax in Georgia is 4% of the policy premium, plus any applicable fees, and is paid to the State Insurance Department on a quarterly basis. A non-admitted carrier is also not backed by a state guaranty fund in the event it becomes insolvent.
Financial Strength
Regardless of whether a carrier is admitted or non-admitted, the best gauge for determining the security of one’s policy is to check the financial rating of the company. The independent industry standard for rating insurance companies is the AM Best Company. AM Best rates a carrier on financial strength and size based on policyholder reserves, which measures a carrier’s ability to pay claims. It is important that a carrier has sufficient assets– capital, surplus, and reserves– to be able to satisfy its financial requirements in the event of your loss. The AM Best Rating system helps to compare carriers’ solvency.
Some carriers are not rated with AM Best, and this will be noted when looking up the carrier’s financial information. Some reasons a carrier may not have been rated are insufficient data, insufficient size and/or operating experience, or that it is not formally followed. Without sufficient financial information on a carrier, it can be very difficult for an insured to be sure how financially strong they are.
Evaluating a Carrier
The insurance industry is currently experiencing an influx of new markets wanting to write particular lines of coverage, including Professional Liability, due to the soft market. A new carrier should be examined closely particularly with regards to financial strength. New does not always mean better. Admitted doesn’t automatically mean “good.” Non-admitted isn’t necessarily “bad.” The State Guaranty fund is only a small remedy in the event a carrier becomes insolvent. Financial strength and size are the best measuring sticks when trying to weed out the “good “ from the “bad.” Be cautioned not to purchase the cheapest coverage available, as it could become the most expensive purchase you have ever made, if the carrier becomes financially incapable of covering a loss. As your trusted advisor, we have set high standards when it comes to making sure our clients are protected. Potter- Holden remains dedicated to  bringing a balance to our clients when providing them with coverage . We continually monitor all of the carriers, their coverage, and their pricing in order to
design a program that will fit your needs. If you would like to find out more about
your carrier’s financial rating, or would like an agent to share a comparison of all
of your options, we would be happy to do so.