Four Steps to Selecting an Insurance Company
If you’re considering insurance as part of your long-term financial plan, along with protecting your material items, you should know the purchase of insurance products has historically been and should continue to be one of the safer long-term strategies you can take.
The key? Find the right insurer. While there are no guarantees in this life, there are ways to evaluate the stability, performance, safety, and suitability of an insurer-before making an insurance commitment. Here’s a step-by-step primer on how to do just that for life, property, and casualty and financial products:
- Work with local professional insurance agents. Have this individual identify four or five insurance companies for consideration. These professionals should align themselves with multiple companies to meet the changing needs of our community. After reviewing your needs and wants, they can shop the insurance marketplace to match you with a carrier.
- Look to the ratings. An evaluation of a company’s financial strength and claims paying ability can be found in the ratings given by independent, third-party rating firms. These private firms perform in-depth reviews of a company’s investments and holdings, its past performance and expectations for both current and future performance, the positioning of its investments in light of current economic conditions, and other factors which can affect a company’s long-term stability. One recommended rule of thumb is to select a company that’s earned at least an A from A.M. Best, Aaa or AAA from one of the other ratings services, plus no rating lower than AA- or Aa3 from any other ratings agency.
- Contact the insurer directly and ask for its ratings and the rating companies used. Also, review the rating companies’ publications; many are available on the Web at www.ambest.com. It’s important to remember rating firms may use differing assessment criteria in their review. And not every insurer may be rated with any or all of the rating firms, as insurers must pay an annual fee for these ratings. Most insurers will be rated with A.M. Best, however. While the ratings themselves aren’t an ironclad guarantee, it stands to reason the higher the rating received, the lower the likelihood an insurer will experience serious financial trouble in the future.
- Measure your risk tolerance. By now, you and your agent have probably narrowed your list to two or three insurers. Learn their base product line, pricing models and structure, underwriting trends, and the risk factors in each. But make sure you’re comparing identical products. Think about how much risk is acceptable to you, and then look to the companies whose products best match that level of risk tolerance. As well, you should consider if the company’s product lines are diverse enough to fit both your current needs and the future.
- Experience, credentials, and reputation. Success breeds success. The experience and credentials of an insurance company are very important. Many companies try to buy business in a certain marketplace by offering low prices with the knowledge of substantial increases in the near future. Quality companies with solid management don’t operate with that mentality to survive over the long haul. Listen to your business associates’ positive experiences from their insurance carriers. Many times you’ll continue to hear the same names. Value that information. IBI