Why is financial stability important in an insurance company? When looking to purchase an insurance product that you may not need for years, the financial strength of the insurer, as well as its claims paying history, are critical considerations.
This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company. "All insurance companies are alike. That is clearly not the case," Webb points out. "When looking to purchase an insurance product that you may not need for years, the financial strength of the insurer, as well as its claims paying history, are critical considerations. Depending on the type of policy you purchase, such as one with a return of premium provision in it, the research you put into your purchase will save you from dashed expectations, or worse, years down the road. Fortunately, the information you need is readily available."
"Information regarding insurance company finances can be found through a host of sources. One organization, the A.M. Best Company, provides financial ratings for all authorized insurers. Some details may require a fee to access, but basic information is available to the public for free once you register. In addition, many insurance companies are publicly traded companies listed on various stock exchanges. There are a number of internet based financial reporting services, such as Yahoo Finance or Reuters, that will provide financial information and other details considered significant for investors."
"When purchasing a long term disability insurance policy from a private insurer," Webb explains, "you will also get information from your agent or broker or from a financial planner. This is another important source of information regarding financial strength, but should not be your only source of information. Make certain you go into detail about both financial strength and claims paying reputation before you sign a policy and make premium payments. When considering a group policy through an association, make certain you identify the insurance company that is underwriting the policy and get information on that insurer. Just because an insurance company advertises on radio doesn't mean it will be there to pay claims when you need it."
"No due diligence about an insurance company is complete without accessing information from your state department of insurance," Webb says. "This can be done online or in person. Most insurance departments have consumer guides for buying various types of insurance. In addition, they will compile and maintain complaint records and, in some cases, will even be involved in the litigation process if they feel that the insurance company is violating state laws regarding the sale of insurance policies or payment of claims. There is a direct relationship between claims practices and financial strength, since investor confidence is not just driven by the "bottom line" but also by the relationship an insurance company has with its regulators."
"The front line of protecting the solvency of insurance companies is with the Department of Insurance," Webb tells us. "They examine insurers every three to five years, or as necessary, to make certain that they have the ability to pay claims. Given the important role long term disability insurance may play in planning for your financial health and that of your family, and given the substantial investment you can make in such a policy over the years, you owe it to yourself to make absolutely certain that the insurer you buy a policy from will be able and willing to pay benefits the moment you need them."
