Why am I Paying State Taxes & Fees for my Insurance Policy?

When I am working on placing insurance on behalf of a business, I first assess which "markets" will be the best place for this risk. There are two types of insurance markets: Admitted Insurance Carriers and Non-admitted Insurance Carriers (otherwise known as Excess & Surplus lines carriers). I've done a brief outline of the two sides below.


ADMITTED INSURANCE CARRIER:  An Admitted company, or standard carrier, is an insurance company that has received a license from the state department of insurance for the authority to write specific lines of insurance. These companies are also bound by rate and form regulations.  Admitted insurance carriers do not charge fees or taxes.

NON-ADMITTED INSURANCE CARRIER:  An E&S carrier is not required to be licensed by the state, but is allowed to do business in that state. E&S carriers are financially stable companies that are regulated in other ways. Excess and Surplus line carriers are not bound by most of the rate and form regulations imposed on standard market companies, allowing them the flexibility to change the coverage offered and the rate charged without time constraints and financial costs associated with the filing process.  Non-admitted insurance carriers are subject to state taxes and fees. 


If I know a business or company is "high-risk" or if they are morphing and gravitating towards a more complicated product or business model, they probably be best suited in the E&S market where insurance companies understand, embrace and can accommodate that particular risk.  An example of an E&S market type of risk would be a ski resort where heli-skiing is offered or a demolition contractor.

On the other hand, some companies are considered an admitted risk and don't need the flexibility of the E&S markets.  They are "low risk" and as long as their operations do not change, they will always be plugged into this category.  An example of an admitted market placement would be something like a virtual administrative assistant company or a catering company. 

For the most part, admitted insurance companies have a list of guidelines and stipulations a risk must fit.  If your business does not fit within that box or program, it is then up to the excess and surplus lines market to accommodate your company.  One is not better over the other in my eyes...just different.  But, an experienced insurance broker should know what side of the equation your business will or should land on upon their initial review.