Insurance AssuranceWritten By: Phillip M. Perry
Article Date: 11-01-2005
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
New ways to check out your insurance company.
If fire or flood destroys your business tonight, will your insurance company pay up quickly - or drag its feet making good on your loss? It's smart to check the dependability of your coverage for property and casualty, workers compensation, general and product liability, and auto. Check out your carrier
Get the odds in your favor by doing your homework to get answers to three questions:
Start by getting reports from the commercial ratings services. It's important to stay with well-rated companies, particularly in the area of umbrella coverage, which protects you for the longest time and in the greatest amounts. All of the agencies have substantial information on their web sites that provide free or low-cost carrier ratings. They also offer more in-depth analyses for a fee.
- How financially solid is your insurance carrier?
- How quickly does it respond when a client files a claim?
- Does it pay claims without nit-picking about contract provisions?
"There are several commonly used resources for finding out about insurance companies," says Daniel C. Free, president of Insurance Audit and Inspection, an Indianapolis-based risk management consulting firm that helps companies assess carriers. "All of these agencies have substantial information and are good sources to tap."
Here are the most active firms:
A. M. Best. Covering the insurance field for more than 100 years, A. M. Best is the grand daddy of the ratings outfits. To get ratings at no charge sign up at www.ambest.com. Use the search box. You will be prompted to take out a free membership, which is instantly confirmed by an email message. Then you are eligible to get Best's Ratings, Industry News, content specific centers, and financial data for insurance companies.
You can also purchase a complete company report online for $75. This includes a business overview, extensive financial data, analytical commentary, and the rationale supporting the carrier's financial strength rating.
Weiss Research. A spin-off from a newsletter, Weiss Research began rating insurance companies in 1989. It now covers more than 2,500 property and casualty carriers. Its reputation for conservative ratings makes it a good back up for Best. Go to www.weissratings.com and click on "Ratings Online." A one-page Consumer Safety Update is $14.99.
Standard & Poor's Insurance Ratings Services. Rating insurance companies for the past 30 years, Standard & Poor's is a favorite of many consultants because of its in-depth analysis, which involves on-site visits to develop a financial strength rating, with respect to the organization's ability to pay claims under its insurance policies. (The highest such rating is AAA). Like Best, S&P offers free reports if you register on its web site. At www.standardandpoors.com, enter a ticker symbol and S&P's SnapShot will deliver the company's current vital statistics, stock quotes, and equity news & analysis.
Moody's Investors Service. While Moody's has been rating bond issues for decades, it started assessing the financial strength of insurance companies in 1986. For free ratings, go to www.moodys.com and use the search box on the right side of the screen.
Demotech. Covering property and casualty insurers since 1989, Demotech now provides financial stability ratings on 2,500 carriers. Go to www.demotech.com and click on "Resources" and then "Financial Stability Ratings."
While the ratings agencies are a good start, most of us are not insurance experts so it pays to get some insight from other sources. Your state insurance department is an important resource.
Many states track complaint ratio reports. They tell you how many and what types of complaints are on file. These can be clues to solvency problems. For example, if a large number of complaints have been filed because a company was late paying claims it can mean the firm is having financial difficulty.
Call your state commissioner of insurance to find out if the insurance company is licensed to do business in your state. If not, you will not have access to the funds in the state guarantee fund if the insurance company goes bust.
To find your own state insurance department go to the web site of The National Association of Insurance Commissioners at www.naic.org/state_ contacts and then click on "State Insurance Department Web Sites."
Talk to brokers
Insurance brokers are very good at knowing which carriers are willing to pay claims without a battle. The broker who hopes to keep you as a client looks out for your interests. If claims are not paid, the broker gets a black eye.
"It's wise to get insight from a broker who is well educated on the whole insurance company solvency problem and who stays on top of it," says Free. "What is their level of knowledge regarding insurance in the first place? There are a great many people in the insurance industry who backed into it from other fields. Bear in mind there are few schools with insurance majors."
Be just as careful when selecting a broker as you are when selecting a carrier.
"Small businesses tend to go with a buddy who is an agent, and that doesn't always yield a good result," says Free. "Sometimes they are people who are active in selling insurance but who are not technically skilled and who don't follow up after the sale."
Large national brokerage firms have whole departments devoted to analyzing carrier solvency. Because large brokers understand their exposure to liability, they try very hard not to sell insurance from companies rated below A-. If a claim goes unpaid, the insured may sue the broker.
With smaller brokers, one of the biggest dangers is that they may not stay on top of the financial solvency ratings of insurance companies.
"Larger brokers know they can get sued for placing a client with a carrier that goes insolvent," says Free. "The smaller broker may not be as diligent."
Even so, he says, some small brokers are excellent.
Says Free, "If a broker works hard, it doesn't matter if he isn't with a big company. You may get a lot more attention out of someone who is smaller. But find someone with a number of other clients in similar businesses."
Select a commercial line broker. Personal line brokers don't have the same access to heavy commercial insurers. And their policies are not as broad in terms of coverage. You need a professional who is familiar with the territory, deals with it every day, and has a good staff as backup.
Whether the broker is large or small, make sure you select a knowledgeable and conscientious staff person. The broker should be willing to come to your location and review everything to make sure you get covered properly. The broker who shrugs off a site visit may be indicating you are too small to be bothered with.
"Beware of brokers who pursue only big accounts and give smaller ones little attention," says Free.
Ask your prospective broker for references. What businesses such as yours have filed claims recently? Contact those companies and ask:
Whatever broker you choose, Free recommends you stipulate in writing that your coverage be placed with insurance companies with A- or better ratings with A.M. Best and that the agent notify you if the carrier receives a reduction in its rating.
- How responsive was the agent following the loss?
- Did the agent help you negotiate with the adjuster or were you left on your own?
- How long before your renewal did you get new quotes?
One final point: All the homework you do with the above sources will come to nothing if you fail to read and understand your policy. Take notes on any questions you have and get answers.
"Most people pay the premium and stick the policy in the file without reading it," says Free. You need to schedule some time to read the details of what you've signed.
Taking the right steps now can save you costly problems when tragedy strikes. "It's important to stay on top of things," says consultant Free. "You want your insurance to be there when you need it."
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