Choosing the Right Insurer
Scores of U.S. property/casualty insurers offer policies designed for small businesses. With so many insurers to choose from, how should you go about selecting one? Here are eight factors to consider when comparing one insurer to another.
Insurers are regulated by state insurance departments. Each state's regulatory body monitors the financial health of insurers licensed to do business there. Regulators try to ensure that the rates companies are charging are neither excessive nor so low that they trigger insurer insolvencies. When insurers become financially unstable, regulators may attempt to rehabilitate them. Despite regulators best efforts, however, some insurers fail. Thus, insurance buyers need to evaluate a prospective insurer's financial strength before purchasing a policy.
Assessing an insurer's financial health is relatively easy since rating agencies have done the number crunching for you. These firms include A.M. Best, Standard and Poor's, Moody's, Fitch, and Weiss Ratings. Each company develops insurer ratings using different criteria. Consequently, an insurer may be rated highly by one agency but not so highly by another. For this reason, it's a good idea to consider ratings from multiple agencies when assessing an insurer.
Insurers must be licensed in all states in which they sell policies. The only exception is non-admitted insurers (also called excess and surplus lines insurers), which specialize in insuring high-hazard or unusual risks. Many state insurance departments offer insurer licensing information on their websites. Such information is also available on a website maintained by the National Association of Insurance Commissioners (NAIC).
State regulators may require insurers to obtain a separate license for each type of coverage they sell. If the Elite Insurance Company sells both life and homeowners insurance in State X, Elite needs two licenses: one for life insurance and the other for property and casualty insurance. When an insurer has multiple licenses, each license may be held by a separate subsidiary company. For instance, Elite's life insurance license may be held by the Elite Life Insurance Company while its property and casualty license may be held by the Elite Property and Casualty Company.
Insurers use a variety of methods to distribute their products. Some sell policies through independent agents while others use captive agents. Some insurers sell their products directly to buyers without using agents. Others use a combination of methods, selling some products directly and some through agents. When evaluating insurance companies, consider your buying preferences. Do you like buying insurance online or do you prefer to purchase policies in person through an agent?
Service refers to the speed, accuracy, and courtesy an insurer displays when it responds to customers' requests. As the following example demonstrates, services is important when you need something right away.
Ernie owns Elite Electrical, an electrical contracting firm. Elite has been hired by Busy Builders, a general contractor, to install wiring a building Busy is constructing. Elite's contract requires it to insure Busy Builders as an additional insured under Elite's general liability policy. Busy won't let Elite start work on the project until Busy has received a copy of the additional insured endorsement. Ernie requested the endorsement from his liability insurer two months ago but has not received a response.
Busy eventually cancels Elite's contract and hires another electrical contractor.
Some insurers provide better service than others. If you have enlisted an independent agent to obtain quotes on your behalf from several insurers, your agent should know which insurer provides the best service. You can also ask other business owners for recommendations. Trade associations, professional organizations and business groups may also offer insurer recommendations.
As a policyholder, you expect your insurer to promptly pay any valid claim you file. Nevertheless, some insurers have a better reputation than others when it comes to handling claims. If an independent agent is obtaining quotes on your behalf, ask him or her about the insurers' claim handling practices. You should also check your insurance department's website for complaints and enforcement actions filed against the insurer. Many policyholder complaints and enforcement actions involve allegations of unfair claims practices.
The coverages you need depend on the nature and size of your business. Some insurers provide basic "vanilla" coverages that most businesses need like commercial auto and general liability insurance. Other insurers focus on coverages for certain types of businesses, such as restaurants or contractors. If your business is highly specialized, look for an insurer that understands your industry. For instance, if your company manufactures medical diagnostic products, you'll need an insurer that is knowledgeable in biotechnology.
The insurers represented by agents vary from one agency to another. If you aren't happy with the selection of insurers from one agent, switch to another agency. Like insurers, some agents and brokers focus on certain industries or types of coverage. If you feel that your current agent doesn't understand your business, look for an agent that specializes in your industry.
The cost of an insurance policy can vary widely from one insurer to another. There are a number of factors that affect the policy premium. These include the rates charged, the limits provided, the scope of coverage included, and discounts provided by the insurer. Be sure you are comparing "apples to apples" when assessing quotes. Policy X may be significantly broader and thus cost more, than Policy Y. However, if the extra coverage afforded by Policy X is not important to you, you may be better off buying the cheaper policy.
Satisfaction reflects an insurer's success (or failure) to meet the needs of policyholders. Insurance buyers can assess insurers' ability to satisfy policyholders by reviewing satisfaction reports published by J.D. Power, a research company. J.D. Power conducts surveys of small business owners to determine how satisfied they are with their insurer's products, prices, billing system, communication, and service. The surveys have indicated that some insurers are satisfying their customers better than others.