Any client who has been asked to sign the “California D1 Form” wonders why they are being shouted at–it’s a horrible form, a full page of information entirely in caps.
To become an admitted insurance company in California, a carrier must submit itself to the Department of Insurance ‘prior-approval’ process for both rates and coverage forms.
Customers of admitted companies are covered by the California Insurance Guarantee Association (CIGA), in the event the insurance company were to become insolvent. (See www.caiga.org) The maximum protection level is $500,000 for property and casualty lines, and an ‘unlimited’ amount for Workers’ Compensation obligations.
Does this mean that companies that are not admitted aren’t good companies and should be avoided? Not at all.
Often insurance companies will choose non-admitted status in order to have more latitude in using underwriting distinctions to price for nuances of difference between similar risks, and not have to worry about violating the straitjacket of their rate filings.
This is especially important in more difficult lines of insurance like Directors and Officers Liability, Errors and Omissions Liability , difficult Product Liability risks, and Earthquake insurance. Their customers lose the protection of CIGA when written with a non-admitted company, but gain a good insurance product at a competitive price that often doesn’t exist in the admitted market.
The purpose of the D1 form is to make the customer aware and have them acknowledge that they are insuring with a non-admitted company and are therefore not covered by CIGA.
Looking at the bigger picture, the main issue for concern is not “admitted v. non-admitted”, but rather the financial stability of the insurance company. There are various outside rating organizations that evaluate insurance companies, the best known being AM Best (www.ambest.com).
Another useful resource to California insurance customers is the Surplus Lines Association of California, (SLA, www.sla-cal.org). Lots of useful information exists regarding non-admitted carriers that have met the eligibility standards to do business in California, along with a list of carriers that have not met those standards, and thus deemed “unacceptable non-admitted companies.”
An “A” rating from AM Best is arguably more important than admitted status, though admitted status confers a minimum level of “insurance for your insurance” through CIGA.
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