If you’re shopping for car insurance in California, you probably figure that all of the insurance companies here are roughly the same. The only thing that sets them apart is their rates, right? Wrong!
Yes, your rates can vary widely from insurer to insurer, but they’re not the only thing that makes these companies different. One of the biggest differences is admitted insurers vs. non-admitted insurers.
Never heard of either term? Don’t worry, you’re not alone!
Most Californians probably can’t tell you if their car insurance company is admitted or non-admitted. In fact, most of them probably also can’t tell you what makes admitted insurers different from their non-admitted counterparts.
But the differences are big — and they have a direct impact on your wallet!
An admitted car insurance company (also sometimes referred to as a “licensed” insurance company) has filed its rates with the California Department of Insurance (CDI) and agrees to apply those rates equally to all of its customers. That’s a biggie, because once an insurance company is admitted, it’s not allowed to change its rates without prior approval from the CDI.
And, before a car insurance company can be admitted, it has to prove its financial stability to the CDI. On the surface, you may not really care if your car insurance company jumps through all of those hoops, but once they do, you’re given some serious security. That’s because all admitted insurance companies are covered by the California Insurance Guarantee Association (CIGA) — meaning that if the insurance company ever declares bankruptcy, CIGA will use special state funds to pay off each of the company’s outstanding claims, up to $500,000 or the policy limits, whichever is lower. So, if your car insurance company suddenly goes belly up, you won’t be left high and dry.
As an added benefit, when you buy a policy from an admitted insurance company, you don’t have to pay a stamping fee or any additional surplus line taxes. That means you can save a little bit of money right off the bat.
The CDI doesn’t just handle money issues, though. It also handles appeals for people who believe that their admitted insurance company didn’t handle their claim properly.
So, does all of this mean that admitted insurance companies are “better” than non-admitted insurance companies?
Even though they don’t have to clear any rate increases with the CDI, non-admitted car insurance companies still have to prove their financial stability. In fact, these companies have to jump through even more hoops than their admitted counterparts. Specifically, the insurance company must have at least $45 million in capital and surplus reserves, three years of qualifications, and a valid license to write insurance in its home state.
Why bother with a company that doesn’t register its rates? Doesn’t that mean you’ll wind up paying more in the end?
The big benefit is that these companies have more flexibility when it comes to both prices and the types of coverage they can offer. As a result, they’re often able to give out policies to “riskier” drivers than admitted insurance companies are. So, if your driving record isn’t exactly stellar, your only option may be to go through a non-admitted insurance company. They’re also able to provide unique types of coverage that the admitted insurers don’t offer. So, if you need something very specific, your only option may be a policy from a non-admitted company.
And, because they can raise their rates anytime they want, it’s easier for non-admitted companies to keep up with any increases in the number of claims that come in. If a lot of claims come in, admitted companies will have to play catch-up, because all of their rate increases must be approved by the state first. That alone can make an insurance company financially healthier, which means there’s less of a chance of them suddenly declaring bankruptcy and leaving you scrambling.
Just remember, non-admitted insurance companies aren’t covered by CIGA. So, if yours does have to file for bankruptcy someday, you won’t have the same safety net that an admitted insurer offers. That’s why it’s so important to find an insurance company that’s got a lot of financial strength.
But how exactly do you do that?
If you want to see just how stable your potential insurance company is, the state of California has made it easy to do — for both admitted and non-admitted insurers. The state issues grades — similar to the grades you received in school — to each insurer. You’ll see a letter grade (ranging from A++ to F) followed by a Roman numeral. These numerals range from I (meaning the company has less than $1,000,000) to XV (meaning the company has more than $2,000,000,000). So, a company with an A+XV grade is financially stronger than one with a B+I grade.
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