Admitted vs. Non-Admitted Insurance Carriers

In the wake of the collapse of Silicon Valley Bank, the Federal Deposit Insurance Corporation (FDIC) has been brought to the spotlight. The FDIC provides certain levels of insurance for depositors in case their bank fails, becomes insolvent, or goes out of business.

Over the last few days, our Capstone Team has fielded questions regarding similar scenarios in which insurance companies fail or become insolvent, and protections or backstops that might be available to insureds in those situations. Those questions lead to an important distinction between: Admitted vs. Non-Admitted insurance carriers.

Admitted Insurance Carriers

Admitted insurance carriers are insurance companies that are licensed by the state government to sell insurance within the state. They are required to comply with state regulations and file their rates with the state's insurance department. Admitted carriers must also participate in state insurance guaranty funds, which provide coverage and steps in the pay claims in the event the insurance company becomes insolvent; similar to the FDIC insurance we’ve been hearing about recently.

Advantages of Admitted Insurance Carriers:

1. Regulated by the state: Admitted carriers must comply with state regulations, ensuring that they follow fair and consistent underwriting practices.

2. Participation in insurance guaranty funds: Admitted carriers participate in state insurance guaranty funds, which provide protection to policyholders in the event the carrier becomes insolvent.

3. Higher level of consumer protection: Admitted carriers must comply with state regulations, providing an additional layer of protection to policyholders.

Disadvantages of Admitted Insurance Carriers:

1. Limited flexibility: Admitted carriers must comply with state regulations, which can limit their ability to tailor policies to meet specific needs.

2. Limited availability: Admitted carriers are only licensed to operate within specific states, which can limit policy options for businesses with multi-state operations.

Non-Admitted Insurance Carriers

Non-admitted insurance carriers are insurance companies that are not licensed by the state government to sell insurance within the state. They do not have to comply with state regulations and do not participate in state insurance guaranty funds.

Advantages of Non-Admitted Insurance Carriers:

1. Greater flexibility: Non-admitted carriers are not subject to state regulations, allowing them to offer more flexible policies to meet specific needs.

2. Broader coverage options: Non-admitted carriers are not limited to state-specific regulations, allowing them to offer coverage in multiple states.

Disadvantages of Non-Admitted Insurance Carriers:

1. Lower level of consumer protection: Non-admitted carriers are not subject to state regulations, providing less protection to policyholders.

2. Higher risk: Non-admitted carriers are not required to participate in state insurance guaranty funds, increasing the risk of financial loss in the event the carrier becomes insolvent.

3. More expensive: Non-admitted carriers may charge higher premiums due to their increased risk exposure and lack of state oversight.

Which Option is Right for You?

Most businesses carry several different types of commercial insurance policies. Some policies may be through an admitted carrier, others may be placed through non-admitted carriers it’s not a “all or none” situation. Deciding between an admitted or non-admitted insurance carrier will depend on a variety of factors, including the types of coverage needed, the specific needs of the business & industry in which you operate, and the organizations’ level of risk tolerance. For businesses that require coverage in multiple states or have unique or higher-hazard operations, a non-admitted carrier may offer greater flexibility. However, for businesses that prioritize consumer protection and the assurances of the state guarantee fund, an admitted carrier may be the better option.

In conclusion, admitted and non-admitted insurance carriers offer distinct advantages and disadvantages. The correct direction differs on a case-by-case, and even a policy-by-policy basis. It's essential to work closely with your trusted insurance & risk management advisor to carefully evaluate the specific needs of the business and level of risk tolerance, and understand the options available to you, before selecting an insurance carrier for all lines of coverage.

CONTACT US:

Thomas Fox, clcs

Risk Management Advisor

tfox@capstonegrp.com

Office: 215-542-8030

Not Even Dragons Can Ward Off Cyber Attacks: HBO Hacked

This week, HBO received a video letter from hackers threatening to release confidential internal documents, including emails and Game of Thrones materials such as scripts, the cast's personal information and even alleged possession of unreleased episodes. The hackers demand a ransom of several million dollars in bitcoin to prevent further release of the stolen data. 

The hack is akin to the crack of Sony's network in 2014, leaking "thousands of embarrassing emails and released personal information, including salaries and social security numbers, of nearly 50,000 current and former Sony employees." Though the chaos inflicted to HBO falls short of this breach, though the risk of the information leaking would impose a large liability for the network. In its efforts to prevent further leaks, HBO has enlisted "round the clock outside cybersecurity firms and law enforcement resolve the incident," to prevent further breach and the public release of this stolen information. 

Cybersecurity is an evermore important subject. From small businesses to large TV networks, the risk of a data breach is stronger than ever and it is important to take cautionary measures when handling sensitive data (especially when it may contain details on the latest conquests of Queen Daenerys and the King in the North). 

"The global cyber market is estimated to be worth $3 billion to $3.5 billion, according to Lloyd’s. PricewaterhouseCoopers, on the other hand, forecasts a potential value of $7.5 billion by 2020."

You can read more about the hack of HBO's network here and here. (No spoilers on the show, we promise.)

Photo source: https://www.flickr.com/photos/142314069@N04/28291657225

Obamacare and the Cadillac tax

The Cadillac tax is already proving to be a pressing concern for employers although it does not come into effect until 2018.

The Affordable Care Act, more commonly referred to as Obamacare, has been controversial since it was signed into law in March of 2010. The controversy has not stopped since its major provisions took effect last January, with criticism coming from both political parties, as well as businesses whose health insurance and benefits coverage were affected. 

The latest worry about Obamacare is the "Cadillac tax" that is to take effect in 2018. The point of the Cadillac tax is to generate revenue to fund the federal government's expansion of health care to all American citizens. This tax on health benefits is the first of its kind and is estimated to impact one in four employers when the tax begins in 2018, and that number will steadily grow with time. A big concern with this tax is about flexible spending accounts, which allow people to save their money for certain out-of-pocket health care costs completely tax free and their use has been encouraged by many employers because of the cost effectiveness. However, FSAs will most likely be one of the first benefits cut as companies scramble to avoid the 40% excise tax applied to benefits worth more than $10,200 for individuals and $27,500 for families. Besides the possible cut of FSAs, employees might also be hit with other cost-saving strategies by their employers such as a decrease in the number of available health plans, an increase in deductible limits, and a narrower selection of doctors and hospitals offered...an overall cutback in benefits.

Although the tax is not going to take effect until 2018, pressure to change it is already coming from both politicians and business owners. A coalition of public and private employers called "Alliance to fight the 40" has come together to urge the members of Congress to repeal the Cadillac tax. Even though the tax faces a good amount of opposition from Democrats, and is universally opposed by Republicans, changes will most likely have to wait until President Obama leaves the White House. 

Read more here!

For more information on Obamacare taxes