When looking at insurance quotes for your association, you might come across the terms “admitted” or “non-admitted. This relates to the carrier’s status in California. For common interests, the term non-admitted typically relates to an earthquake insurance carrier. Does it mean that your insurance broker/agent is sending you quotes for carriers that aren’t legally doing business in the state of California? The answer is no. Earthquake insurance, and coverage for communities with significant loss histories or brush fire concerns, is commonly written through non-admitted carriers.

Admitted carriers are licensed by the state of California, and the state controls a number of aspects of the carrier’s operations. These include financial requirements, policy forms used, rate approvals, and claims handling. Speaking specifically about rate, the state requires that carriers submit their rates to the California Department of Insurance and get approval for those rates. They are not allowed to change their rates without going through the application process all over again. Also, each admitted carrier is required to participate in the California Insurance Guarantee Act (CIGA). This is sort of an insurance for insurance…. If a carrier goes bankrupt and cannot pay out on a claim, this is a pool of money funded by the participating carriers, that will pay up to $500,000 for claims you might have. Because these carriers have their rates filed with the state of California, if there is any question about that carrier’s claims practices, you have the ability to request an investigation from the California Department of Insurance.

The issue is, with catastrophic exposures like earthquakes, very few carriers operate with admitted status. It is too risky for the carrier to be committed to providing a certain amount of coverage at an inflexible price. Carriers become over-exposed and have no means of protecting their investment. So, to create that flexibility, they operate with non-admitted status. Non-admitted carriers are allowed to sell insurance without filing their rates with the California Department of Insurance. They must, however, prove to the state of California that they have a certain level of solvency and money set aside in reserves to pay claims. The carrier is placed on the List of Available Surplus Lines Insurers (LASLI) to provide confidence to consumers that the carrier has been reviewed by the state. The customer must sign a disclosure form that shows they are aware of the carrier’s non-admitted status. For most risks, the broker/agent has an ethical responsibility (that they are supposed to prove via documentation) that they tried to get you an admitted quote first, and that they had those requests denied.

Michael Berg, MBA, CIRMS, CMCA, EBP is the Owner of, and Kimberly Lilley, CIRMS, CMCA, EBP is the Director of Business Development for Berg Insurance Agency and can be reached at michael@berginsurance.com and kimberly@berginsurance.com, respectively.