There are both advantages and disadvantages to insuring your clients through non-admitted companies. The greatest advantage is undoubtedly the price, as insurers are allowed more flexibility in setting rates and premiums for non-admitted policies.
That being said, there are major disadvantages to using non-admitted companies that far outweigh the lower premiums:
Classification Limitation Endorsement
This endorsement is designed to only cover the insured for operations specifically described in the description of hazards section of the General Liability policy. Therefore, under this endorsement, the insurer limits its liability coverage to the classifications noted in the policy. The insurer may agree to pay all sums that the insured is legally obligated to pay as damages, but coverage applies only to those occurrences having to do with the classifications named in the policy. This being the case, the designated classification must match the nature of the activity, or the insurer is likely to deny both defense and coverage.
General Liability Is Usually 100% Minimum Earned
In order to be more competitive, markets have occasionally reduced it to 90% or 80%. In other words, the policy may generate additional premium on audit because of an increase in payroll due to more work than projected. However, it will not generate a return premium if the actual payroll is less than what was estimated. This is not a very uncommon turn of events in today’s economic climate.
While you may find your client a cheaper rate with a non-admitted carrier, the coverage can be spotty in certain situations that are quite common. Coverage needs to be closely examined to ensure that there are no gaps that could become problematic in the long run.
For more information, visit NIP Programs.