Selling Non-Admitted Insurance Products vs Admitted: What's the Difference?

White-Label Insurance Growing Your Business Insurance Industry

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White-Label Insurance Growing Your Business Insurance Industry

By The Boost Team on May 12, 2023

6 min read

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When it comes to insurance, there are two major regulatory types: admitted and non-admitted.

Admitted insurance refers to insurance products that have been licensed by the Division of Insurance (DOI) in the state where they are being sold and are subject to state regulations. In addition to meeting state standards on things like price, coverage, and packaging, admitted insurance products offer additional protection to their end buyers - if the carrier fails, the state will pay a certain amount of its outstanding claims.

Non-admitted insurance, on the other hand, refers to products that are not licensed or approved by the state DOI, and do not have the same financial protections from the state. There can be many benefits to offering non-admitted insurance products, but because they aren’t regulated by the state, there are unique responsibilities that agents, brokers, and insurance have to keep in mind.

In this blog, we will break down 3 important areas where non-admitted insurance products differ from admitted insurance products, and explain the implications for agents and brokers.

Declinations

By nature, non-admitted insurance products exist to cover hard-to-place risks that most admitted products won’t cover — whether that be insuring a barrier island home that is frequently at risk of flooding or covering Beyoncé’s voice in the event of injury. To sell non-admitted policies that cover these unpredictable, difficult-to-price, high-risk situations, regulations require an agent or broker to first get several declinations from separate admitted insurance carriers. The exact number can vary by state, but the standard is typically three declinations.

A declination is a written refusal of an admitted insurance carrier to issue an insurance policy. To get one, the agent or broker will have to fill out an application or written request for coverage to each insurer, and then wait for the insurers to return documents that decline each request. This process ensures that the agent or broker has done their due diligence in attempting to place the risk in the admitted market, and that they understand and accept responsibility for offering a non-admitted policy.

This process of getting three declinations often has to be done for every policy sold. Going back to our examples: say an agent goes through the usual process to find an insurance policy for their client’s island home: they make inquiries to three carriers for admitted products, are declined three times, and eventually place the risk with a non-admitted product. If their client’s next-door neighbor then calls and asks the agent to find them a policy as well, the agent would generally have to once again try for three different admitted products before moving on to the non-admitted market.

There can be state-specific nuances to the compliance requirements regarding declinations. In some states, there may be exceptions to the declination rule if no equivalent product exists in the admitted market. For example, crypto wallet insurance is a first-of-its-kind insurance offering, and only currently exists as a non-admitted product. In some states, this means the agent or broker selling it can be absolved of having to do the due diligence of getting three declinations from admitted carriers.

Some states also allow for getting the declinations once, and then using it for all similar risks going forward. In that case, the agent in our above example wouldn’t need to get three new declinations for the neighbor’s house - the risk would be similar enough that they could use the declinations they had already received as justification for placing their client with a non-admitted product.

Licensing

Every agent and broker needs an insurance license to sell insurance products, and most will need more than one. Insurance is licensed at the state level, so a license is required for each state you intend to sell in. There are also different types of licenses required for selling admitted and non-admitted products.

Here are the four types of licenses an agency will need to sell non-admitted insurance products. Current agents and brokers will already have the first two license types but may need two additional license types to start selling non-admitted products.

1. Individual admitted license

The basic license required for selling insurance is known as a “producer” or “agent” license. This is obtained by completing a pre-licensing course and passing the required tests in a particular state which allows an individual to sell insurance in that state.

2. Entity license

An agency or brokerage will also have to attain an “entity” or “agency” license. This license allows a company (rather than an individual) to sell insurance within the resident state.

3. Non-admitted license

Selling non-admitted insurance products requires an additional non-admitted license. In most states, the non-admitted license will have an entirely separate license number from the individual license.

4. Surplus lines license

Finally, selling non-admitted insurance products requires a surplus lines license. While non-admitted products don’t have to go through the intense approval processes with the DOI, the companies that create these products do need to submit articles of incorporation, a list of officers, and various financial and company information to the surplus lines office, which is run and regulated by the state. Any agents or brokers who wish to sell non-admitted insurance policies also need to be licensed by this office.

Premium Payments, Taxes, and Fees

Both admitted and non-admitted insurance products are subject to taxes in the states where they are being sold. While every state has its own taxes and fees, there are some standard differences between how admitted and non-admitted insurance products are handled across the board. The major differences boil down to how and by whom taxes and premiums are calculated and collected.

For admitted insurance products, taxes and fees are generally included in the premium, and are calculated and remitted by the insurance carrier. The broker or agent selling the product doesn’t usually need to concern themselves with taxes for these products, since those are the carrier’s responsibility.

Non-admitted insurance, on the other hand, is not so simple. For these types of insurance products, the premium calculations are handled by the insurance carrier, and the taxes and fees are calculated separately by the broker or agent. The broker or agent is then responsible for collecting those taxes and passing the money on to the appropriate state government(s).

The process goes something like this: The insurance carrier determines the premium amount and sends that information to the agency or brokerage, along with the policy documentation and a state disclosure form declaring that the non-admitted product complies with state regulations. From there, a broker or agent has to calculate Excess and Surplus lines (E&S) tax on top of the premium and any surplus lines fees. Many agents and brokers also add an administrative fee for non-admitted products to help offset the greater administration costs. Once the total amount is calculated, it can be shared with the policyholder.

Once a policyholder makes their payment, the broker or agent will have to send the premium payment to the carrier, remit the taxes to the state, send fees to the surplus lines office, and take the administrative fees for themselves. For this process, agents and brokers typically use a state-specific surplus lines agent management system (AMS) to file the product, policy, policy number, effective date, expiration date, line of business, E&S carrier, and the premium amount. The AMS will also calculate and reconcile the taxes, and then that state will send them a bill at the end of the month, quarter, or year (depending on which state they are selling in) to settle the remaining taxes.

In short, non-admitted billing is much more operationally burdensome for brokers and agents to support versus admitted, which is why adding on an additional administrative fee is very common.

Non-admitted insurance products are an important part of the insurance market and can help provide vital protection for hard-to-place risks. Being equipped, informed, and licensed to sell these products can open up lucrative new lines of business for agents, brokers, and insurtechs.

If you want to learn more about selling non-admitted insurance or getting your insurance licenses through Boost’s licensing-as-a-service, contact us.

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Ready for Liftoff: BHMS Backs Boost

Jul 31, 2024

Friends of Boost, Today Boost is thrilled to announce that we have secured a significant equity investment from BHMS Investments, setting the stage for an incredibly exciting next phase for this company and the amazing team that has built it brick-by-brick over the past seven years. With a rock-solid foundation firmly in place, this partnership is going to supercharge our growth, fuel more innovation, and cement Boost’s position as the go-to infrastructure platform in insurance. We are on a mission to empower MGAs, insurtechs, independent brokers and agents, wholesalers, embedded insurance providers, and really any company that just wants to build, transact, and operate more efficiently in this technology-enabled world of ours. While capital is great, today is about hard-earned validation for our team doing that the right way since Day 1. BHMS is the perfect capital partner for Boost in terms of their insurance expertise and unquestionable track record in the space, but more importantly, they are fantastic people that share both our views on the industry and our principles of company building. The market is dangerously fixed for early and growth stage companies right now (and I say “fixed” intentionally). It’s incredibly easy to get picked off in an environment like that, so it takes a rare mix of both intellect and character to do the right thing when you’re on the capital side of that equation - and even more to be truly value-add to your portfolio companies. BHMS has that mix in spades and appreciated Boost for what it is, what it has accomplished, and what remains an incredibly high ceiling for this company vs. playing short-term charades with the herd. That’s our kind of investor. This investment isn’t just about the money—it's a resounding endorsement of Boost’s strength, credibility, and potential to make a truly meaningful impact on the insurance industry at scale. With BHMS now on board, alongside an incredible group of long-time strategic backers like Markel, RenaissanceRe, and Canopius, we’re ready to take our game to the next level. Our mission has always been to disrupt the insurance space with cutting-edge tech and unparalleled service, and this backing proves that disrupting responsibly is the only approach that works in our industry. Anyone can grow fast if they don’t care about quality or long-term credibility. At Boost, we underwrite profitably, we respect compliance, and we always - always - take a collaborative approach with our stakeholders across the entire value chain. As someone with literally zero patience, I can personally attest to that being incredibly difficult to do at times - but it scales. Even with the market’s ups and downs, Boost has been a powerhouse of innovation in the insurtech landscape with equal commitment to disruption and reliability. Doing things the right way does not mean you cannot innovate - or even disrupt - and leveraging best-in-class technology is not a right reserved for #insurtechs. Our platform has always been a one-stop shop for insurtechs and embedded insurance providers and MGAs, independent agents and brokers, and wholesalers alike - offering everything from product development to underwriting and program management to claims administration and reinsurance capacity. With our proprietary tech and a dream team of industry pros, we’re delivering smarter, more efficient solutions than ever before. Since our first program launched in 2019, we’ve underwritten over $200 billion in coverage, which is a somewhat staggering figure in hindsight. Today we’re proud to support programs for giants like Amwins along with trailblazers like Cowbell, Newfront, and Wagmo, and we’re grateful for all of the companies that chose to build with Boost even when Boost itself was just getting started. Our steady, disciplined approach has kept our portfolio profitable and we like to think that has kept our partners in front of us very happy as well. All of Boost’s success is thanks to what is hands down the best team in the industry. Hard stop. Their grit, dedication, and willingness to tackle tough challenges head-on has been crucial. Boost’s commitment to quality starts with our team and is reflected in them every single day. We keep things lean at Boost because that quality always outperforms quantity. Even if that approach always requires more from each individual and makes the stakes a bit higher, working with the right people makes the returns on each long hour invested that much more gratifying. Few people exemplify those principles or have demonstrated such an unwavering commitment to Boost more than Jeremy Deitch, so I am also thrilled to announce that Jeremy has been promoted to President at Boost and will join me on our Board of Directors. Jeremy’s leadership has been critical since the day he started at Boost almost 6 years ago, following probably the most grueling interview process in our company’s history - one he is always happy to dramatize even more if you ever ask him. ;) I couldn’t be more grateful to have a partner like him as Boost soars to new heights. With this new investment, we’re geared up to boost (pun intended) our growth and expand our tech offerings. We’re planning to scale our MGA programs, roll out new products, and snap up some strategic acquisitions. Our goal? To make building a business in insurance easier, faster, and more efficient for everyone so they can better serve their customers. We’re more fired up than ever about our mission to empower insurance providers with the tech and infrastructure they need to thrive. This partnership with BHMS is just the beginning. The future is bright, and we’re ready to lead the charge. Thank you to everyone who has been part of our journey thus far. Let's all keep pushing boundaries together - because the best is yet to come. Special thanks to the team at Howden Capital Markets & Advisory for helping Boost always say what it’ll do and do what it says. You can find our full press release here and, more importantly, can start joining our platform here. All my best, Alex Maffeo CEO & Founder Boost Insurance

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What is a Cell Captive?

May 23, 2024

A captive is an insurance entity that a business creates, rents, or owns in order to self-insure risks. A cell captive, sometimes also called a protected cell captive or segregated cell captive, is a specific insurance captive structure that allows an entity to segment or separate business in one cell from that in another cell, so that a particular cell’s assets and liabilities are insulated from anything that happens in another cell (even if both cells are part of the same overall captive facility). Using captives to self-insure risk offers businesses a number of benefits: they can participate in some or all of their program’s underwriting profitability, maintain end-to-end control over risk (including pricing and claims handling), and avoid paying significant overhead fees to a “middleman” insurer. Companies have several options for structuring and utilizing an insurance captive. They might build a single-parent captive, pool risk in a group captive, or make use of a cell captive. In this blog, we’ll take a look at each. In a single-parent captive, a company will often partner with a fronting carrier to reinsure at least part of their own risk. These are most commonly used by very large companies with exposure to multiple lines of business, which they can insure through the same captive entity. Example: A national food-delivery business wants to provide insurance to its restaurant partners, to protect against the risk of lawsuits related to food safety for meals delivered through the service. It discusses partnerships with several major insurance carriers, but none are willing to provide the level of coverage that the business is looking for at a reasonable price. To get what it needs, the food-delivery business sets up a captive to reinsure a fronting carrier partner, enabling the business to insure its own risk and provide the coverage it needs to its restaurant partners. Setting up a single-parent captive is a considerable undertaking with high capital requirements and a complex setup, with significant ongoing operational requirements going forward. In order to make sense financially, it usually requires a high volume of premium. For that reason, this option is usually only viable for very large businesses. For businesses that can’t afford (either in time or in money) to set up their own captive, a second option is to partner with other businesses in a related industry to set up a group captive. In this scenario, a single captive maintains portfolio capacity that can be shared by a group of entities. The entities can then pool risk together in the single captive. Example: Several real estate companies form a partnership to share a group captive to pool their similar risks. Each company contributes a certain amount of capital to fund the captive, and the capacity is shared among the partners. The participating real estate firms are then able to leverage the captive’s capacity to exercise greater control over their risk, and avoid paying high fees to middlemen. This can allow the partner businesses to share risk (and benefits) between them, and works well for trade associations and other groups of companies in related industries, that share similar risks. However, since the fund is shared between partners as well, one partner’s negative returns can impact the other partners involved. In a cell captive, the business first sets up an entity called a core, which is a similar process to setting up a single-parent captive. Once the core entity is complete, however, the business can much more easily spin up additional cells within the captive structure. The financials for those individual cells are separate from each other, rather than the combined funding of a single-parent or group captive. For many companies, however, using a cell captive doesn’t mean building one themselves. While there are use cases for single-parent cell captives, most businesses that create them then rent out cells to other businesses. Using a cell in another company’s captive entity (also called captive-as-a-service) allows a business to reap the benefits of an insurance captive at a much lower cost. We’ll look at some examples in the next section. The first step in creating a cell captive is to create the “Core” entity. This process is similar to building a single-parent captive: Once the core captive entity has been created and adequately funded, the owner can spin up individual cells within the captive’s structure to support different lines of business, segments, or partners. The Department of Insurance will still need to approve all new cells, but the process is much more streamlined than in prior cases. New cells can often be set up in weeks instead of the months or years typically needed for entirely new captive entities. Captive cells’ assets and liabilities are then statutorily protected from each other (which is where the ‘protected cell captive’ name comes from). This means that if one cell has a difficult year and experiences significant underwriting loss, the assets of the neighboring cells can’t be used to fund that loss. There are multiple ways that cell captives are used, including offering captive-as-a-service (also called rent-a-captive) to other partners or businesses, and separating different parts of the parent company’s business for performance tracking. In a captive-as-a-service or rent-a-captive scenario, the company that owns the captive core would allow other businesses to use cells in its captive. For a fee, the owner can set up a new cell specifically for the partner business, and manage it on their behalf. This lets the partner business leverage the owner’s infrastructure to achieve many of the same benefits of a single-parent captive, without the cost and complexity of creating one. Example: An insurtech specializing in commercial insurance has built a very strong customer base, and wants to further grow its business by participating in some of its own risk. However, building a full captive is too resource-intensive for the insurtech to take on. Instead, the insurtech partners with a CaaS provider and rents a captive cell. The insurtech then uses the cell to self-insure some of its risks, enabling it to participate in the underwriting returns and further scale towards a full-stack insurance business. While the most common reason for building a cell captive is to rent out cells to other businesses, there are a few reasons a company might build one for its own use. Because the cells’ financials are statutorily separated from each other, a cell captive allows a large enterprise to delineate between different lines of business or geographic regions, and monitor their performance separately. Example: A nationwide property management company offers several insurance products to its customers to help protect their personal property and finances. For planning and budgeting purposes, each line is supported by an individual cell in the management company’s cell captive. Over the course of the fiscal year, several lines perform over their targets, while one line significantly underperforms. The other LOBs’ budgets are unaffected by the low-performing LOB’s losses, and the company has clear visibility into which of its products are doing well and which may need a course correction. Cell captives provide a number of benefits to both their owners and the end users: Cell captives are popular for a reason: they offer significant value to both the companies with the resources to build them, and the companies that would rather rent a cell than build a single-parent entity from scratch. To learn more about Captive-as-a-Service with Boost, contact us.

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Partnerships and Focus: Big Trends at Money20/20

Nov 3, 2021

It was a busy October for the team at Boost Insurance, wrapping up with one of our favorite industry events: Money20/20. The conference was a super interesting contrast to ITC which was laser-focused on insurance, while Money 20/20 was more about fintech in general and much, much bigger! With fintech about ten years ahead of insurtech in terms of maturity, it’s interesting to see the level of innovation and diversity of companies in our big brother industry. Here are some of the big trends we noticed. One of the really interesting trends that kept being repeated at Money20/20 was a shift in mindset among both fintechs and banks. In the past, they have tended to see each other as competition for consumers’ business and attention but now everyone is moving towards viewing each other as complementary vs. competitive. We saw multiple collaborative efforts between the upstarts and the established, working together to create a better customer experience. This works because they each have a specialization (fintechs excel at meeting modern consumer expectations and banks are experts in profitably navigating a very regulated, very complex business), and partnership lets them bring both those strengths to the table. This was extra interesting to us at Boost because it reflects what we see in insurance, with insurtechs and carriers working together and bringing their own strengths together to meet modern consumer needs and expectations. For example - Boost has built a modern tech platform making various insurance products available via API but partners with established reinsurance companies to facilitate risk transfer. There will still be winners and losers between the incumbents and the upstarts, but as collaboration and competition continue consumers will be the clear winners. A trend I’ve written about before, and one that we continue to see play out, is tech companies’ focus on affinity groups. Fintechs are springing up all over with explicit goals of serving a relatively narrow group of people and serving them well. Companies like Paceline for people focused on health and wellness, Daylight for the LGBTQ+ community, and First Boulevard for African-Americans are just some of the fintechs concentrating on being the best option for a specific set of consumers. This is pretty much the opposite of traditional one-size-fits-all programs - instead of creating something broad that can be good enough for the biggest slice of people, creating something very targeted that can be great for a specific niche. This trend is great news for consumers who traditionally have not been served well by financial services in general. At Boost we’re starting to work with more affinity-focused companies because our modular, customizable product structure allows partners to tailor insurance for their customer needs. It’s exciting to be part of making insurance more accessible to all groups of people! Finally, it was really exciting and validating to see so much interest in new approaches to traditional industries. Finance and insurance have historically had a reputation for being very slow to change, sometimes for good reason (highly regulated, handling people’s money is a big responsibility, etc). This year though there’s a ton of interest in potential innovations, look no further than the enormous presence of blockchain and crypto-focused companies at Money20/20! Boost met with a TON of different companies during the show, and we cannot talk about anything yet but be on the lookout for some very interesting things coming in the near future! Money2020 was a heck of a conference and while my conference year is wrapped, the Boost team will be out and about at shows the rest of the year. We are looking forward to more opportunities to meet people in 2022, so if you did not get a chance to connect with us at Money2020, just drop us a line.