When purchasing insurance in California, you may come across the term non-admitted insurer. These insurers operate without a state-issued license but can still provide coverage in specific situations. While they are not regulated in the same way as admitted insurers, they offer essential options for businesses and individuals who cannot find coverage from traditional insurance providers.
Understanding how non-admitted insurers work in California is crucial to making informed decisions about your insurance needs. This topic will explore what non-admitted insurers are, their benefits and risks, and how they compare to admitted insurers.
What Is a Non-Admitted Insurer?
A non-admitted insurer, also called a surplus lines insurer, is an insurance company that is not licensed by the California Department of Insurance (CDI). Unlike admitted insurers, these companies do not follow state-mandated rate approvals or policy regulations. However, they are still legally allowed to sell insurance under special circumstances.
Key Characteristics of Non-Admitted Insurers
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Not regulated by the California Department of Insurance
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Not protected by the California Insurance Guarantee Association (CIGA)
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Offer policies that admitted insurers do not provide
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Premium rates are not state-regulated
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Must be approved as an eligible surplus lines carrier
Non-Admitted vs. Admitted Insurers: What’s the Difference?
Admitted Insurers
An admitted insurer is an insurance company that has obtained a license from the California Department of Insurance. These insurers must follow state regulations, including policy standards, rate approvals, and consumer protection laws.
Benefits of Admitted Insurers
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State regulation ensures fair pricing and coverage
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Backed by the California Insurance Guarantee Association (CIGA)
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Policyholders have legal recourse for disputes
Non-Admitted Insurers
A non-admitted insurer, on the other hand, operates outside of state regulations but is still authorized to provide coverage through surplus lines brokers. These insurers often handle high-risk policies that admitted insurers do not cover.
Benefits of Non-Admitted Insurers
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Coverage for unique or high-risk situations
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More flexible policy terms and pricing
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Faster approval process compared to admitted insurers
Risks of Non-Admitted Insurers
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No protection from the California Insurance Guarantee Association (CIGA)
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Limited oversight from state regulators
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Higher premiums in some cases
When to Use a Non-Admitted Insurer in California
Non-admitted insurers are often used when admitted insurers refuse to provide coverage. This is common for businesses or individuals involved in high-risk activities.
Common Reasons to Choose a Non-Admitted Insurer
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High-Risk Business Activities – Certain industries, such as construction, cannabis, and aviation, face higher risks that standard insurers may not cover.
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Unique or Unusual Insurance Needs – If you require a policy with customized terms that admitted insurers do not offer, a non-admitted insurer may be the only option.
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Natural Disaster-Prone Areas – Homeowners in regions with high wildfire risk may find it difficult to secure coverage from an admitted insurer.
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Excess and Surplus Lines Insurance – When standard insurers reach their coverage limits, a non-admitted carrier can provide additional protection.
How to Buy Insurance from a Non-Admitted Insurer in California
Because non-admitted insurers are not licensed in California, you cannot purchase policies directly from them. Instead, you must work with a licensed surplus lines broker who specializes in placing coverage with these insurers.
Steps to Purchase a Non-Admitted Insurance Policy
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Consult with an Insurance Broker – A licensed broker will assess your needs and determine if a non-admitted insurer is the right choice.
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Check the Insurer’s Eligibility – The insurer must be approved as an eligible surplus lines carrier in California.
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Review Policy Terms Carefully – Since non-admitted insurers are not state-regulated, policies may contain different terms, exclusions, or higher deductibles.
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Understand Financial Strength Ratings – Choose an insurer with a strong financial rating (e.g., A.M. Best rating of A or higher) to ensure stability.
California Regulations for Non-Admitted Insurers
Although non-admitted insurers are not directly regulated by the California Department of Insurance, they must still comply with certain rules to operate legally.
Key California Laws for Non-Admitted Insurers
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Must be placed through a licensed surplus lines broker
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Required to be on the state’s List of Approved Surplus Lines Insurers (LASLI)
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Must disclose that policies are not backed by the California Insurance Guarantee Association (CIGA)
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Subject to surplus lines premium taxes
Consumers should always verify that their policy is issued by a legally approved surplus lines insurer to avoid dealing with unlicensed or fraudulent companies.
Pros and Cons of Non-Admitted Insurance in California
Pros
✔ Coverage for hard-to-insure risks – Provides options when standard insurers refuse to cover specific businesses, homes, or properties.
✔ More flexible terms – Non-admitted insurers can customize policies based on unique needs.
✔ Faster approval process – Because they are not bound by state regulations, non-admitted insurers can offer coverage quickly.
Cons
✖ No guarantee fund protection – If the insurer goes bankrupt, policyholders cannot seek reimbursement from the state guarantee fund.
✖ Higher premiums – Some policies may cost more than those from admitted insurers.
✖ Less consumer protection – Policy disputes must be resolved through the courts instead of state insurance regulators.
How to Protect Yourself When Using a Non-Admitted Insurer
While non-admitted insurers provide valuable coverage for high-risk needs, it’s important to take precautions before purchasing a policy.
Tips for Choosing a Reliable Non-Admitted Insurer
✔ Work with a reputable broker – Always buy coverage through a licensed surplus lines broker in California.
✔ Verify the insurer’s financial rating – Use A.M. Best, Moody’s, or Standard & Poor’s ratings to check the insurer’s stability.
✔ Understand policy exclusions – Read the terms carefully to ensure you receive the coverage you need.
✔ Confirm state approval – Check if the insurer is on California’s List of Approved Surplus Lines Insurers (LASLI).
Non-admitted insurers play a crucial role in California’s insurance market by offering coverage for risks that admitted insurers will not take. While they do not have state approval, they are still legally allowed to provide policies through licensed brokers.
If you need high-risk or specialized coverage, a non-admitted insurer may be the best option. However, it is essential to work with a trusted broker, verify the insurer’s financial strength, and review policy details carefully to avoid potential risks.
By understanding how non-admitted insurance works in California, you can make informed decisions and ensure you have the right protection for your needs.