This was prepared through the cooperative effort of the Indiana Department of Insurance and the National Association of Insurance Commissioners (NAIC).
You are a buyer of different types of insurance. You may have insurance on your home, your car and your life. When you buy, you need to learn about the financial condition of the insurance company. This literature has been provided by your state insurance department and the National Association of Insurance Commissioners to help you make informed choices when shopping for insurance.
Since the mid-1800s, state governments have been responsible for regulating insurance. A primary job of state insurance regulators, like those you will find in your state insurance department, is to make sure that the insurance company you do business with will be around when the time comes for it to pay your claim.
Here are some questions that may be on your mind, and some answers to those questions.
Insurance company failures have been rare. Insurance regulators have taken over a few companies facing economic trouble in order to protect insurance consumers. However, these companies represent a tiny fraction of the industry.
Every state has a safety net to protect insurance consumers from financial loss in the rare instance that a company becomes insolvent. This safety net is called a "guaranty fund." The guaranty funds are established by state law and are composed of licensed companies in the state. They pay the claims of policyholders and other claimants of an insolvent company. The money used to pay the claims against the insurance company comes from assessments made against all of the insurance companies that are members of the guaranty fund.
Shopping for Insurance
The first step in selecting a financially strong insurer is to shop around. Talk to several representatives or agents from a number of different companies. Tell them what your insurance needs are and ask them what their company will charge to cover you.
When you talk to company representatives or insurance agents, remember that they are sales people who make their living selling insurance for insurance companies. They are a source of information on price and coverage, but many represent the company, not you. They will not make money unless they sell you insurance from a company they represent. You are responsible for deciding whether you want to purchase an insurance product and, if you do, from which company to buy it.
Once you have narrowed down the companies you are considering, you can take a number of steps to learn more about their financial condition.
Call the state insurance department to find out if the insurance company is permitted to do business in your state. If not, don't buy insurance from that company. Tell the insurance department that the company is trying to do business in your state. If you purchase insurance coverage from companies not legally doing business within the state, you will not be protected by the guaranty fund should the company fail.
Several private companies or rating agencies conduct financial analyses of insurance companies and grade them. These grades or private ratings are only opinions. Therefore, they carry no guarantee of accuracy, but they can provide you with some information about how private analysts view the health of particular insurance companies.
Look at how several of the agencies rate a company. Note, though, that different rating agencies use different criteria and rating scales for insurance companies. When checking with an agency, be sure to ask about the scale it uses and how it designates its highest rating so that you will be able to put the rating of the company you are considering in context. It's also a good idea to see if an insurer's grades have changed over the last couple of years. Ratings are available at most public libraries, or you may call the agencies directly at the telephone numbers listed below. If you call, ask what you will be charged for rating information about a company. Also note that if you dial a "900" number, your telephone bill will reflect a charge that is a fee paid to the rating agency in addition to the cost of the call.
A.M. Best Company - 900-420-0400
Demotech, Inc. - 614-761-8602
Duff & Phelps, Inc. - 312-368-3157
Fitch Investors Svc. - 212-908-0500
Moody's Investors Svc. - 212-553-1653
Standard & Poor's - 212-208-1527
TheStreet.com Ratings, Inc - 800-289-9222
If you find that one company is able to quote you a much lower price or a much higher yield on an insurance product than the rest of the companies you are considering, be careful. It may be that the company is taking greater risks itself, such as having too many high-rick investments.
The Indiana Division of Insurance is the agency charged with regulating the business of insurance in the State of Indiana. The NAIC, founded in 1871, is an association of the chief insurance regulators from the 50 states, the District of Columbia and four U.S. territories.
Department of Insurance
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120 W 12th St. Suite 1100
Kansas City, MO 64105-1923