By Jim Clemmensen

With the continuing poor economy, many self-storage business owners are looking for ways to reduce expenses. Insurance costs are a significant expense category for most small businesses, and you may be presented with an opportunity to consider a non-admitted insurance carrier to reduce your premium. Before you do so, it is recommended that you fully understand the differences between admitted and non-admitted carriers.

In the simplest terms, an admitted insurance carrier is licensed by one or more states, and a carrier classified as non-admitted in a state is unlicensed. The non-admitted carrier provides an option for agents and insureds when a risk is unusual or when coverage is not available from an admitted carrier. Specialty risks, risks with high loss potential, risks with loss issues, and risks requiring unusual coverage wording are examples of why a non-admitted carrier would be considered.

There are two main reasons for choosing an admitted licensed insurer over a non-admitted (surplus lines) insuror:

1.  Non-admitted carriers are generally not members of a state's property casualty insurance guarantee association and don't contribute monies to the guarantee fund. What this means for policyholders is that there is no monetary protection available from the state to protect the insureds' assets and pay claims in the event a non-admitted insurer should fail and be financially unable to make payments as promised. By contrast, if an admitted carrier fails, the state guarantee fund provides money to pay policyholders' claims up to a specific limit designated by the state.

2.  There are regulatory issues involved with obtaining coverage from a non-admitted carrier. In most states, the laws and regulations governing surplus insurance lines provide that a policy may not be placed with a non-admitted insurer as long as the desired coverage is available from a licensed admitted insurer. Therefore, state regulatory requirements relating to the utilization of a non-admitted carrier should be carefully considered and reviewed.

In some states the law requires that a non-admitted surplus lines insurer must be declared eligible by the relevant state department. Many states require insurance agents to document that a quote was declined by admitted carriers prior to placing the policy with a non-admitted insurer.

The bottom line is that a non-admitted carrier should not be utilized for the sole purpose of reducing premium. If a non-admitted carrier becomes a strong consideration, it is highly recommended that the agent be requested to review the coverage offered in detail and point out any coverage limitations that may exist when compared to the coverage provided by an admitted carrier. Additionally, the financial rating of any carrier should be considered whether using an admitted or non-admitted company.

In addition to understanding the differences between admitted and non-admitted carriers, there are several steps you can take to educate yourself about your insurance.

Becoming an Educated Insurance Consumer

Make an appointment with your insurance agent to review your coverage,
deductibles and building value limits.

Get a list of your insurance carriers from your insurance agent.

Identify whether your carriers are admitted or non-admitted (non-licensed).

Some lenders may have insurance carrier requirements. Therefore, it is
recommended that you be aware of any requirements that your current
lender may have, and any that could impact future lending sources.

Find out the A.M. Best rating of your insurance carriers and learn what
these ratings mean.

If you discover that you have a policy with a carrier that does not have a
positive A.M. Best rating, you should discuss the issue immediately with
your independent insurance agent.

Your independent insurance agent should be able to provide information to help you with your research. Your state’s local regulatory agencies can also be an important resource to both you and your agent.

Jim Clemmensen is Senior Vice President of Insurance Operations for Phoenix-based MiniCo, Inc. MiniCo provides industry-leading specialty programs for self-storage businesses including property and casualty insurance and tenant insurance programs. For more information please visit www.minico.com.