Selection of a Good Insurance Company

Consumers should consider three criteria when choosing an insurance company:

• Financial strength • Fairness and promptness in processing claims • The ability and willingness to provide service before and after a loss.

An insurance policy is a promise. Like all promises, it is worth no more than the word and the financial strength of the person or company making it. Therefore, the first priority in choosing an insurance company is to find a financially strong company.

Financial Ratings Firms. Consumers can get a professional opinion of the financial strength of many insurance companies by reviewing the ratings provided by an independent Financial ratings firm. The following firms provide financial ratings of insurance companies: A. M. Best Company (http://www.ambest.com), Standard & Poors (http. Ilwww.standardandpoors.com/RatingsActionsIRatingsListslInsurance/ InsuranceStrengthRatings.html), Moody's Investor's Services, and Weiss Research (http://www.weissratings.com). Some of the output from these firms is available on the Internet, and some is available in public and university libraries. The ratings firm with the longest history of evaluating insurance companies is A. M. Best Company. Its ratings are published as Best's Insurance Reports. These reports are published annually in two editions (property casualty and life health). Best's Reports contain considerable information about insurers including the names of their officers, their home office address, company history, composition of assets, balance sheets, and significant operating ratios. A consumer considering dealing with an unfamiliar insurer, or even a familiar one whose condition is in doubt, would find relevant information about the company in Best's.

The following points list some critics' concerns about relying too heavily on an insurer's financial rating when making a purchase decision:

• The ratings firms often do not agree among themselves on a specific insurance company's merits. • All ratings firms can and have made mistakes. • One letter grade cannot accurately sum up an insurance company's operations. Slight differences in letter grades probably do not make a sound basis for choosing one insurer over another. Companies with high ratings can sell policies that are not the most efficient choices. • Ratings are estimates; they are no guarantee of the future.

One rule of thumb is that unranked companies or those ranked lower than the highest three ratings categories by the majority of the ratings firms should be avoided unless the consumer has good reason to deal with an unrated or low rated insurer. One problem with following this advice is that in most cases, new insurance companies fall into the lower or unranked categories. As is the case in most industries, new insurance companies may produce innovative products, have lower prices, or offer some other competitive advantage.

Other Information. Other sources of information about specific insurance companies include insurance agents, state insurance regulators, and satisfied or dissatisfied customers. All these sources may be subject to biases. Agents may have a monetary interest in recommending a company. Dissatisfied customers may be victims of their own misunderstanding. Moreover, stories about a few unhappy customers are more likely to receive public attention than the successful handling of thousands of claims in which customers were satisfied by their insurer's efforts. State insurance regulators may be forced to make limited comments because of the sensitive nature of their statements.

Once a financially sound company is identified, the consumer should determine the company's reputation for fairness and promptness in settling claims and its reputation for providing service. An agent's motivation to provide good service comes from the company. If the home office stresses good service, the agent is more likely to provide it than if the company appears indifferent. In past years, Consumers Union has published reports on automobile, long term care, health, and life insurance companies covering claims handling, cancellation, relative costs, customer satisfaction, and other characteristics in its magazine, Consumer Reports. Although a review may no longer be current, it presents information a consumer would find useful in evaluating a company's desirability. Other periodicals also provide information on insurance and insurance companies. These articles can be found by using an online search of the library or the Internet.