Insurance companies do fail sometimes, but even when that happens, there are still safety nets the government has set up to protect you
Clinton Township, MI (Vocus) April 22, 2009
What Happens if an insurance company fails?
Consumers can be rest assured their insurance policy is safe and their claims will be paid - within limits - even if their insurance company fails. Many consumers may be questioning the safety of their insurance policies after the federal government announced an $85 billion bailout of AIG, one of the largest insurance companies in the United States.
AIG had not failed, but it does lack the cash on hand to pay out immediate claims.
With the help of the federal government, AIG will have the money to pays its immediate bills and customer's insurance claims. Experts say AIG’s insurance policyholders are safe and that the company will not fail. But if AIG can get into trouble, what about your insurance company?
"Insurance companies do fail sometimes, but even when that happens, there are still safety nets the government has set up to protect you," says Brian Hannigan, senior editor for RateElert.com.
The regulation of insurance company ratings is a function of the state. State regulators monitor the financial health of companies licensed to provide insurance in their state through analysis of the detailed annual financial statements that insurers are required to file and periodic on-site examinations. When a company is found to be in poor financial condition, regulators can take various actions to try to save it.
However, despite the best efforts of regulators, insurance company failures do occur.
All states have procedures through which the the insurance industry covers claims against insolvent insurers. For example, New York has a pre-assessment system, which requires insurers to contribute to a permanent insolvency fund, while the other states have established insurance guaranty associations (known as guaranty funds). Insurers are required to be members of guaranty associations as a condition of licensing. When there is an insolvency, they are assessed based on business they do in that state so that claims can be paid.
A new insurance company ratings proposal introduced in Congress in April 2009 to grant insurance companies the option of being federally regulated, would create a guaranty fund to protect consumers against the insolvency of a federally regulated insurer. Federally regulated companies would have to pay into the federal guaranty fund as well as pay insolvency assessments levied by the state guaranty funds in which they were licensed to do business.
In conclusion, even with this safety net in place it is always a good idea to make sure you are with a financially stable insurance company. To help consumers with this, RateElert has put together their Top 5 Warning signs to watch out for:
1) You have trouble getting to speak with a representative or placed on hold for more than 10 minutes when calling. Shows a decrease in staffing which could be a sign of not being able to keep up with payroll requirements.
2) Their AM Best Rating is downgraded to B++ or worse. AM Best is a rating agency that evaluates the financial stability of insurance companies. You should always have your insurance with an "A" or better Rated Carrier.
3) They increase your Rates by more than 40%. This big of an increase shows a sign of lack of “Capital Reserves” on Hand which means your insurance carrier needs to increase your premiums significantly in order to fund their reserves they need to have on hand to stay afloat.
4) Late making your Claim Payments. If they take more that 60 days to settle your claim ... watch out. Your company may not have the money coming in to pay your claim.
5) Your Insurance Company asks the U.S Government for Bailout Money. If they are behind AIG in line at the steps of the White House ... Look Out.
To help U.S consumers find out more on the rating and financial stability of their insurance company, RateElert will e-mail you the A.M. Best Rating of your particular company after completing a 3-minute online form with information on your car insurance for free so you can feel safe and secure knowing you are with a financially stable insurance company, and who knows, you may qualify for a lower car insurance rate in the process.
RateElert is a consumer insurance shopping site that combines the power of the internet and wireless technology to match consumers with local insurance agents. By offering a complete menu of insurance products, RateElert is the # 1 website for North American Households shopping for insurance.
All the insurance companies in the RateElert Network are Rated “A” or better by AM Best.