Guide to Selecting an Insurance Company

When you buy insurance, you need to learn about the financial condition of the insurance company.  Here are some questions that may be on your mind, and some answers to those questions.

What is the likelihood that my insurance company will fail?

Insurance company failures have been rare.  Recently, insurance regulators have taken over a few companies facing economic trouble in order to protect insurance consumers. However, these companies represent a tiny fraction of the industry.

When I am buying or renewing my insurance, how can I protect myself from companies in bad financial shape?

SHOPPING FOR INSURANCE

The first step in selecting a financially strong insurer is to shop around. Talk to several representatives or insurance producers from a number of different companies. Tell them what your insurance needs are and ask them what their company will charge to cover you.

When you talk to company representatives or insurance producers, remember that they are sales people who make their living selling insurance for insurance companies. They are a source of information on insurance coverage and the price for coverage, but many represent the company, not you. They will not make money unless they sell you insurance from a company they represent. You are responsible for deciding whether you want to purchase an insurance product and, if you do, from which company to buy it.

Once you have narrowed down the companies you are considering, there are a number of steps you can take to learn more about their financial condition.

MAKE SURE THE COMPANY MAY LEGALLY DO BUSINESS IN YOUR STATE

Call your State’s Division of Insurance to find out if the insurance company is permitted to do business in your state. If not, don't buy insurance from that company. Tell the Division of Insurance that the company is trying to do business in your state. If you purchase insurance coverage from a company not licensed in your state, you will not be protected by your state’s guaranty fund should the company fail.  Also note that insurance purchased from an approved but non-admitted (not licensed) insurer is not protected by the guaranty fund.

CHECK WITH THE RATING AGENCIES

Several private companies or rating agencies conduct financial analysis' of insurance companies and grade or rate them. These grades or private ratings are only opinions. Therefore, they carry no guarantee of accuracy, but they can provide you with some information about how private analysts view the health of a particular insurance company.

Look at how several of the agencies rate a company. It's also a good idea to see if an insurer's grades or ratings have changed over the last couple of years. Ratings are available at most public libraries or on the internet.

IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS.

If you find that one company is able to quote you a much lower price or a much higher yield on an insurance product than the rest of the companies you are considering, be careful. It may be that the company is taking greater risks itself, perhaps by having too many high-risk investments.

How do I file a claim if the insurance company has failed?

Even if you have filed a claim with the company, you will need to file a claim with the Division of Insurance or with a court-appointed deputy of the division. You will receive a notice from the Division of Insurance advising you on how to file a claim and how long you have to file it. Pay close attention to any filing deadlines mentioned in the letter from the division— you must comply with those deadlines in order to preserve your rights.

Can I find out if consumers are complaining about the company?

Yes. Ask the Division of Insurance if there have been an unusually large number of consumer complaints against the company. Sometimes, if a company is having financial difficulty, the company may start to pay its claims more slowly or not at all. While a large number of consumer complaints lodged against a company are not a certain way to tell if a company is healthy, it's a good clue.