Admitted Insurance Carrier vs Surplus Lines Insurance Carrier

I am often asked, “What is an admitted insurance carrier versus a surplus lines insurance carrier?”

An admitted insurance carrier is a company licensed and authorized to operate in a specific state or jurisdiction. These carriers are regulated by state insurance departments and must adhere to their rules and regulations. Policies issued by admitted carriers are protected under the state’s insurance guaranty funds if the insurance company becomes insolvent. This means the state ensures your claims are paid even if the insurance company runs out of money. Admitted carriers usually offer standard insurance products that comply with regulatory requirements and are available to a range of customers.

Surplus lines carriers provide insurance coverage for specialized or higher-risk clients that admitted carriers do not typically cover. These carriers are regulated less strictly since they are not licensed in the state where the risk is located. Consequently, policyholders may not have the same level of protection if a surplus lines insurer becomes insolvent.

The likelihood of an insurance company becoming insolvent depends on various factors, including its financial stability, risk management practices, regulatory compliance, investment performance and the overall economic environment. Insurance regulators monitor the financial strength and solvency of insurance companies to protect policyholders.

Financial ratings from agencies like A.M. Best, Standard & Poor’s, Moody’s or Fitch provide insight into the insurer’s financial strength and ability to meet its obligations. An “A” rating from A.M. Best indicates a strong ability to meet ongoing insurance policy and contract obligations. This rating reflects a stable financial outlook and a well-positioned company to fulfill its obligations to policyholders. It is important to note that rating scales may vary slightly between agencies, but an “A” rating is typically among the highest given. When selecting an insurance provider, I recommend choosing a company with an “A” financial strength rating from A.M. Best.