What is the difference between a Licensed insurer and a Non Admitted insurer (also known as surplus lines insurer)?

Every State in the United States differentiates between the two types of insurer. Non admitted insurers accept risks that Licensed insurers will not. This may be because the risk is too hazardous for the Licensed insurer to accept or there have been too many claims. Because Non Admitted insurers are willing to insure these more difficult situations they are granted certain exceptions that apply to Licensed insurers. For example they are not required to get approval for the policy forms that they use or the premiums that they charge. They are also exempt from rules concerning the cancellation or non renewal of policies.

Does the State of Colorado provide any oversight of the financial condition of Non Admitted insurers?

Yes. Non Admitted insurers are subject to annual scrutiny by the Division of Insurance. They are required to meet more stringent application financial standards than Licensed insurers.

Are Non Admitted insurers as financially secure as Licensed insurers?

A.M.Best, a nationally ranked rating agency, conducts annual research into the insolvencies of both Licensed and Non Admitted insurers. They have found that insolvencies are less frequent in Non Admitted insurers.

Am I covered by the State Guaranty Fund?

No. In the unlikely event that the Non Admitted insurer providing your policy were to become bankrupt you would have no recourse from the State Guaranty Fund.

Does an insurance representative that negotiates with a Non Admitted insurer have to have any special qualifications?

Yes. Resident insurance producers that negotiate with Non Admitted insurers must obtain a special license after they have passed a special test established by the State Legislature.

Does my licensed insurance representative have to make sure that a Licensed insurer will not provide insurance before they insure me with a Non Admitted insurer?

Yes. The Division of Insurance requires that insurance producer determine that your risk cannot be insured with a Licensed insurer. This process is called "Due Diligence" However, if you pay more than $50,000 in premiums and employ, or contract with, a professional Risk Manager the producer may not have to conduct this search. This is because the State Legislature recognizes that you are a sophisticated insurance buyer that recognizes the differences between the two types of insurers.

Can a Non Admitted insurer terminate or non renew my policy without notice or without providing me with a reason?

Yes. Because they accept certain types of risks that have greater exposure the State Legislature allows them to terminate liability without giving notice that may be required for licensed insurers. However, all insurance policies contain specific provisions that may require the Non Admitted insurer to give notice. You should read your policy.

How much is the surplus lines premium tax?

The tax is calculated at a rate of 3% of the total of premium for exposures in Colorado plus any fees charged by the insurer.

Why am I responsible for paying the tax on my insurance premium?

Colorado collects premium taxes on all insurance policies. However with a company that is licensed in the State they allow them to collect the tax on their behalf and collect it from them annually. Because the Division of Insurance does not exercise authority over a non admitted insurer they expect the consumer (policy holder) to pay the tax to their agent who forwards it to the State.

I am a non profit organization. Do I have to pay surplus lines tax?

Yes. If you purchase insurance from a Licensed insurer they collect premium tax and pay it to the State on your behalf. Therefore you are liable to pay premium tax on a premium paid to a Non Admitted insurer.

We are a Native American tribe with sovereign rights. Do I have to pay tax?

Yes. The Colorado Division of Insurance has determined that you must pay the surplus lines premium tax.