Issuing of International Program Policies on the Non-Admitted Market in the US
For quite some time now, our partners in the US have advised us of the tendency that local US program policies in international programs are more and more issued on the “non-admitted market” (Excess and surplus lines market). This is causing concerns and issues of which we would like you to be aware of if you are involved in setting up Programs that include US exposure.
Especially for special lines such as directors & officers (D&O) and cyber, international program insurers are not issuing local program policies on the so-called “admitted market” (standard market), but rather on the “non-admitted market” (excess and surplus lines market).
Originally, the non-admitted market was intended as outlet for risks that can hardly or not be placed on the admitted market. On this specific market, contrary to the standard market, insurers are free to choose their scope of coverage and their rates. Therefore, especially premiums quoted in an international program that are lower than the current market conditions in the US are preferably issued on the non-admitted market in order to avoid inquiries and sanctions by the US authorities for the insurer.
At the same time, access to the non-admitted market is only granted if all means on the admitted market have been exhausted.
However, as far as our experience goes, most insurers of international programs switch the US policies to the non-admitted market without explicit information to the leading broker.
According to a lot of program insurers, these changes of partner in the US are mostly strategic and also not uncommon for the US market, since for example local D&O policies are also regularly issued on the non-admitted market.
Whereas this is generally correct, issuing a policy on the non-admitted market in the US does have further implications for both the local servicing broker as well as the local client, which we would like to point out as follow:
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In case a policy is issued on the non-admitted market, the local broker needs to be licensed for this market. In our role as network administrator, we at TRC ensure certain compliance standards, such as local licenses with insurers. However, we can only ensure that a certain local broker is indeed licensed for a specific business if we are aware on which market a policy is issued.
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Moreover, due to local compliance regulation a servicing broker in mostly all US states is obliged to present certain documents/application forms/notices of rejection on the admitted market (usually 3 rejections on the admitted market are obligatory before the non-admitted market can be accessed) before coverage is placed. However, our local partner is not able to comply with these regulations if he is only aware of the fact that a policy is placed on the non-admitted market after the policy is issued – which most of the time is after coverage is incepted. Nevertheless, as the local broker is liable to follow the regulations, and in case of an inquiry by US authorities, might also be fined for not complying with the local law.
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Policies that are not issued on the admitted market are subject to different taxation and surplus fees. Different from the admitted market, taxes and fees on the non-admitted market are incurred in addition to the premium outlined and thus raise the gross premium that is invoiced to the local client. Both the local servicing broker as well as the leading broker will not be able to inform their clients about these additional costs if none of them is aware that the policy is issued on the non-admitted market.
