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To the editor: When I first entered the insurance field, it was my understanding that the distinction between admitted and non-admitted policies was more than that the former was subject to stricter scrutiny by the state insurance department and was backed by the state guaranty fund, whereas the latter was not. Rather, it was my impression that admitted policies had the benefit of the state intervening on the policyholder's behalf to ensure that policy provisions provided greater protection for the policyholder.
In practice, I have found that not to be the case. For example, I recently worked on an account in which the same insurer was willing to offer the same type of policy on an admitted and a non-admitted basis. The admitted policy carried with it a state amendatory endorsement requiring coinsurance and removing the "in fact" determination requirement for the fraud and illegal person profit exclusion. The non-admitted policy, free of state restrictions, was identical in every other way but that it would not carry these provisions.
Working for an independent insurance agency, I believe it is my primary obligation to locate and obtain the best coverage for the best cost for my client. However, the Excess Lines Assn. in my state requires three declinations from admitted insurers before insurance for non-admitted coverage can be placed. This puts my duty to my client at odds with my duty to the state.
I think that, if the state is going to put more restrictions on admitted policies, it has no business requiring clients to place their business there. Surplus lines taxes provide a disincentive where coverage discrepancies do not materially exist. On the other hand, the client should be able to get the best protection without state interference.
This leads to two conclusions:
First, one should be able to place with a non-admitted insurer if one cannot procure similar coverages, not merely similar policy types. Obviously price alone cannot be the determining factor; rather, coverage differentials should be what underlies the competitive advantage between one policy and another.
Second, three declinations would seem to be unnecessary if the difference in coverage is based upon an amendatory endorsement required to be put on all admitted policies in that policy class. Why should the time and effort of two additional underwriters be wasted when the state requirement makes one admitted policy suffer from the same deficiency as another compared to a non-admitted one?
The state Excess Lines Assn. does not require declinations on certain classes of business where coverage is in scare supply; why, then, should it require declinations where the state's own regulations have made a coverage feature not merely scarce but non-existent in the admitted market?
R.P. O'Brien & Co.
White Plains, N.Y.