Which Insurance Risk Do You Face during the Banking Crisis?

The current financial crisis in banking brings up new problems: people start to question themselves about their insurance company. After all, the main purpose of insurance is taking risks, so it is important to know if your company has taken on too much risk — and if it has enough money to pay for a claim when it happens.

Today insurance companies set money aside (called loss reserves) – it is perfect for customers, because that money will be used to pay claims in the future. The state department of insurance monitors every insurance company. It also analyzes their annual financial status reports. The loss reserves which are initiated for the protection of the consumers of each company are carefully looked at by the states.

Financial Regulations of Insurers

Sam Belden, Insurance.com VP–Strategic Alliances, says: "Such insurers which are owned by companies that operate a wide range of businesses have a big advantage: their financial condition is closely regulated and is often not subject to the same types of risks as those in unregulated industries. Whereas recent situation, a lot of insurance commissioners started to assure their consumers that they are monitoring the insurance company financials, in order to protect consumers in their state".

The best way to determine the insurer’s financial stability is to check the ratings from A.M. Best Company. It makes independent ratings that assesses a company's ability to meet its future financial obligations, in other words, to make claims payments. The "A" rating or better means, that the company has Excellent or Superior financial stability. Visit www.ambest.com if you want to check your company.

Anyway, state insurance regulators usually try their best to save the company, which is in poor financial condition. In case of their failure, the company becomes insolvent (which means they are basically declaring bankruptcy). The state insurance department is responsible for making sure that current and future claims are still paid on behalf of the insolvent company.

State Insurance Guaranty

There’s other good news for policyholders. Nearly every state has insurance guaranty associations (called guaranty funds), their purpose is to pay the claims of an insolvent company. If the insurer wants to do business in that state, it has to be the member of guaranty association. In the case of insolvency, the other companies are assessed based on business they do in that state, so that claims can be paid. New York and some other states have a pre-assessment system, the insurers contribute money each year to a permanent insolvency fund. This money is used for claims payments when a company is not able to do so. In any event, consumers are protected first.

If you want to determine the necessity of switching the insurance companies, consider your actual experience with your company:

  • Are you happy with your company?
  • Does your company respond to service requests and claims promptly?
  • Does your company’s website provide access to your policy and information about the company?
  • Does your company have a solid rating with A.M. Best Company?
  • Did you have problems with your company over the years?
  • Do your rates stay consistent with no major premium increases?
  • Did you have good experiences during the claims process?

If you answer “Yes” to the questions above, then you should seriously consider staying put.

Good Reasons to Change

If you are unhappy with your current insurance company or you simply haven't checked rates for a year or so – it is a good reason to consider switching insurance providers. The increase of premiums or changes in your personal circumstances (moving, getting married, or other major life events) might present a chance to check for savings.

When you are choosing company, make sure that your current policy is in place till your new coverage starts. Even a lapse of a day or two can be troublesome when you look for coverage from a new company. You need to know that insurers offer their best rates to drivers who maintain "continuous insurance coverage" because drivers who keep their coverage in force have fewer losses than those who do not. The few days do not seem like much, but it can be costly in terms of the rates on your next policy. With recent events, saving on car insurance is a big deal.

If you have questions or comments about the current economic turmoil and insurance, please let us know.

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