Independently Procured Non-Admitted Insurance in the U.S.

In the United States, admitted insurance carriers are those licensed by a state’s insurance department and subject to its regulations, including form and rate approval and participation in the state guaranty fund. This means if an admitted insurer becomes insolvent, state guaranty funds can cover claims (up to certain limits) as a safety net. By contrast, nonadmitted insurance carriers are not licensed in the insured’s state and therefore are not regulated by that state’s insurance commissioner in the same manner. Nonadmitted insurers do not contribute to state guaranty funds, so their policies carry the risk that if the insurer fails, policyholders have no state-provided backstop for unpaid claims.

Despite this trade-off, nonadmitted markets play a crucial role by covering unique or high-risk exposures that admitted insurers will not insure. In practice, nonadmitted insurers can offer more flexible policy terms, customized coverage, and capacity for atypical risks (e.g., cyber liability, catastrophe-exposed property) without needing prior state approval of rates or forms. This flexibility allows them to insure risks that cannot be adequately insured through admitted carriers, but it also means policyholders must accept less regulatory oversight and no guaranty fund protection.

In short, “nonadmitted insurance” simply means the insurer is not licensed in the jurisdiction where the risk is located; it does not imply the coverage is illegitimate. Nonadmitted policies are a legitimate, regulated part of the market (albeit regulated in a differing way compared to admitted insurers), often provided by financially strong companies, including well-known surplus lines insurers and syndicates.

What Is Independently Procured Non-Admitted Insurance?

Independently procured insurance, also called direct procurement or self-procured insurance, refers to a company or individual purchasing insurance directly from a nonadmitted insurer, without using a licensed broker as an intermediary. In other words, the insured’s risk manager or insurance purchaser negotiates and obtains a policy from an insurer not licensed in the state, rather than going through the state-regulated insurance market.

This is in contrast to the typical excess and surplus (“E&S”) lines placement where a licensed E&S lines broker must facilitate the transaction. Independently procuring coverage is usually an option exercised by large, sophisticated commercial insureds with in-house expertise, since they must identify a willing nonadmitted insurer and handle compliance obligations themselves.

Importantly, the right of an insured to directly contract with an out-of-state or foreign insurer has long been recognized in U.S. law. The U.S. Supreme Court has upheld that an insured has a constitutional right to procure insurance from an unauthorized insurer of their choice. States cannot completely prohibit an insured from independently obtaining coverage from a non-licensed insurer, though they can impose conditions such as taxes and reporting. Many states have codified this right in their statutes, explicitly allowing “independently procured insurance” as long as certain requirements (primarily tax payment and notice) are met.

In summary, independently procured nonadmitted insurance is a legally permissible avenue for coverage, the insured bypasses the E&S lines broker, but in doing so takes on the responsibility to ensure the placement is lawful and taxed appropriately.

Excess & Surplus Lines Market vs. Independently Procured Coverage

It’s important to distinguish independently procured insurance from the more common E&S lines market. Both involve nonadmitted insurers, but the placement process and regulatory framework differ:

• Excess & Surplus Lines: In an E&S transaction, the insurance is obtained through a licensed E&S lines broker or agent. The broker must first attempt to place the risk with admitted insurers (a “diligent search”), unless an exemption applies (e.g., the risk is on a state’s export list or the insured qualifies as an exempt commercial purchaser). Once it’s confirmed that the standard market won’t cover the risk, the broker can “export” the risk to eligible nonadmitted insurers. The E&S lines broker is regulated by the state; they must be specially licensed, ensure the nonadmitted insurer meets eligibility criteria, provide required disclosures, and file the transaction with the state’s E&S lines stamping office. The broker also collects and remits the E&S lines premium tax on behalf of the insured to the state.
• Independently Procured (Direct) Insurance: In an independently procured placement, a state-licensed broker is not involved in the transaction. The insured typically directly negotiates with a nonadmitted insurer (often out-of-state or overseas) to purchase coverage. Since the transaction does not involve an E&S lines broker, the transaction does not go through the normal E&S lines filing system. However, the insured is usually required to self-report the purchase to the state insurance department or tax authority and pay a “self-procurement” premium tax on the policy. The premium tax rate is often, but not always, the same as the E&S lines tax rate in that state.

This illustrates the key difference. With direct procurement, the responsibility shifts to the insured to ensure taxes are paid and laws are followed. With the E&S lines market, the broker handles these compliance duties.

Premium Tax and Reporting

Nearly all states impose a direct procurement tax on independently procured policies. These taxes are generally a percentage of gross premium, and the insured is responsible for filing a report to the state insurance or revenue department and remitting the tax. Failure to report and pay can result in fines, and the policy may be deemed unauthorized.

Consumer Protections and Disclosures

Unlike admitted policies, nonadmitted insurance is not subject to prior approval of policy forms or rates. To mitigate this, some states require disclosures stating the insurer is not licensed and that no state guaranty fund will cover the risk if the insurer becomes insolvent. Additionally, insureds should carefully evaluate the insurer’s financial strength since the usual regulatory vetting is less direct.

U.S. Regulatory Aspects and The Nonadmitted and Reinsurance Reform Act

In 2010, the regulatory landscape for E&S lines and nonadmitted insurance changed significantly with the passage of the Nonadmitted and Reinsurance Reform Act (“NRRA”).

Effective July 21, 2011, the NRRA, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, established a framework for regulating nonadmitted insurance and reinsurance transactions in the United States. It centralizes regulatory authority for nonadmitted insurance to the insured’s “Home State,” preempting other states from imposing their own requirements. This means that only the home state of the insured can regulate the placement of nonadmitted insurance and collect premium taxes associated with such insurance.

The NRRA also simplifies licensing requirements for E&S lines brokers. It prohibits states other than the insured’s home state from requiring E&S lines brokers to be licensed to sell, solicit, or negotiate nonadmitted insurance. Additionally, the NRRA preempts state laws that attempt to regulate nonadmitted insurance transactions involving insureds whose home state is another state, except for workers’ compensation insurance, which remains subject to state-specific restrictions.

Regarding reinsurance, the NRRA limits the regulatory authority of states to the domiciliary state of the reinsurer, provided that the state is accredited by the National Association of Insurance Commissioners (“NAIC”) or has similar financial solvency requirements. This ensures that only the domiciliary state can regulate the financial solvency of reinsurers and prevents other states from imposing additional financial information requirements (15 USC §8222). Furthermore, the Act preempts state laws that restrict credit for reinsurance or impose extraterritorial application of state laws on reinsurance contracts, provided the domiciliary state recognizes credit for reinsurance.

The NRRA also encourages uniformity among states by promoting the adoption of nationwide standards for reporting, payment, and allocation of premium taxes for nonadmitted insurance. States are encouraged to adopt uniform requirements and procedures, such as interstate compacts, to facilitate these processes. Additionally, the Act prohibits states from imposing eligibility requirements on nonadmitted insurers domiciled in the U.S. unless they conform to the NAIC’s Nonadmitted Insurance Model Act or alternative nationwide uniform standards.

Prior to the NRRA, if an insurance policy covered risks in multiple states, each state could claim regulatory authority and require a share of the taxes. The NRRA addressed this by implementing the “Home State Rule.” Under this rule, only the insured’s home state has jurisdiction to regulate and tax a nonadmitted insurance transaction.

The NRRA also encouraged states to enter into compacts or agreements to share E&S lines premium taxes among themselves for multi-state risks. In practice, most states have chosen not to share, so today the home state gets 100% of the tax and is the sole regulator for that placement.

Additionally, the NRRA established uniform insurer eligibility criteria and introduced the Exempt Commercial Purchaser (“ECP”) concept, which allows large, sophisticated buyers to bypass the diligent search requirement when accessing the nonadmitted market.

Current Landscape

Nearly all states have amended their laws to conform to NRRA’s home state approach. Whether coverage is placed through a broker or independently procured, compliance falls under the home state’s authority. This has simplified compliance, though companies must still adhere to their home state’s tax and reporting rules.

Benefits of Independently Procured Insurance

Independently procuring nonadmitted insurance can open access to global markets, enabling insureds to reach foreign insurers and specialty underwriters that may not be available through the admitted market. Because nonadmitted insurers are not subject to prior rate and form approval, companies often gain flexibility to negotiate custom policy language, pricing approaches, and coverage structures tailored to unusual or complex risks.

The direct nature of these placements can also streamline timelines by avoiding certain broker-driven steps, which may be useful when capacity or terms are needed quickly. In some cases, the structure may reduce brokerage-related costs, though premium taxes still apply and overall economics vary by situation. Finally, some risk managers value the autonomy of a direct relationship with the insurer, which can create tighter alignment on program design, service expectations, and claims strategy.

Risks and Challenges of Direct Procurement

The most significant downside is that nonadmitted policies are not supported by state guaranty funds, so there is no statutory backstop if the insurer becomes insolvent. Direct procurement also shifts the compliance burden to the insured: taxes must be calculated and remitted correctly, filings made on time, and procurement steps structured to avoid any unlawful insurance placement.

Without a licensed E&S lines intermediary, an insured may have less visibility into market alternatives, wording nuances, or insurer appetites, potentially resulting in less competitive terms or unnoticed coverage gaps.

Claims handling can be more challenging as well, particularly when dealing with foreign carriers or differing legal systems, and there is less regulatory oversight to appeal to in disputes. Taken together, these considerations mean companies need strong internal expertise and disciplined processes before opting to go direct.

Practical Guidance for Companies Considering Direct Procurement

Organizations considering independent procurement should involve legal and regulatory counsel early to confirm permissibility, document the process, and map filing and tax obligations in the home state. They should perform rigorous due diligence on prospective insurers, focusing on financial strength, reputation, and operational capabilities, recognizing that solvency protection is not available through guaranty funds.

It is crucial to identify the home state under the NRRA framework, understand the applicable tax rate and reporting cadence, and calendar deadlines well in advance. Clear documentation of how the transaction was initiated and conducted, along with appropriate policy disclosures, helps evidence that the placement was lawfully procured.

Companies should periodically reassess whether direct procurement continues to meet objectives relative to a brokered E&S approach, weighing administrative effort, market access, and pricing.

Finally, they should monitor regulatory developments, since changes at the state or federal level can alter definitions, eligibility, tax rules, or reporting mechanics.

International Perspectives: South America, Europe, and Beyond

Outside the United States, nonadmitted insurance is often restricted or permitted only under narrow conditions, so multinationals must evaluate local rules before extending coverage.

• In parts of South America, for example, regulators may allow nonadmitted placements only when comparable domestic coverage is unavailable, sometimes requiring evidence of declinations or capacity shortfalls before approval.
• Across Europe, coverage is generally provided by authorized (admitted) insurers using passporting rights; direct placements with non-EU, nonadmitted carriers are typically constrained and may be limited to certain large risks or permitted under reverse-solicitation concepts.
• Canada takes a more permissive approach but imposes taxes and, in some provinces, notification requirements that the insured must manage.
• In other regions, including portions of Asia and the Middle East, local authorization is commonly required and nonadmitted coverage may be broadly prohibited outside specialized lines such as marine or aviation.

The practical takeaway is that global programs often pair admitted local policies with a master difference-in-conditions or excess layer, ensuring local compliance while achieving broader risk-financing objectives.

Conclusion

Independently procured nonadmitted insurance offers companies flexibility to access global markets and tailor coverage beyond the admitted system. The NRRA simplified compliance by consolidating regulation under the home state, but companies must still shoulder the responsibility of tax reporting, compliance, and insurer due diligence.

While it provides important flexibility, especially for sophisticated buyers, it comes with risks, particularly the absence of guaranty fund protection and the heavier compliance burden. For many insureds, the E&S lines broker system remains the preferred path, but for those with expertise and specific needs, independently procuring coverage can be a powerful risk management tool.

Disclaimer: This article is for informational purposes only and does not constitute legal, financial, tax, or insurance advice. The content is not a substitute for professional guidance tailored to your personal circumstances. Insurance products, terms, rates, and availability vary by insurer, jurisdiction, and time; features and exclusions are subject to change without notice. We do not guarantee the accuracy, completeness, or timeliness of the information contained in this article. Before making any insurance decision, you should consult with a licensed insurance professional who can assess your individual needs. For legal or regulatory compliance questions, consult an attorney or your insurance regulator.