People in the U.S. pay more than $1 trillion in insurance premiums each year. Most of us have more than one insurance policy at any given time, including health, auto, homeowners, and life insurance policies. And when the time comes to shop around for a new one, you probably do some due diligence, researching the premiums you’ll have to pay for the amount of coverage that you want.
But that it offered a good premium isn’t the only thing you should know about a potential insurer. Fair premiums, low deductibles, and expansive coverage are important, but none of that means much if you choose an insurer that’s struggling financially, has very low customer satisfaction rates, or which routinely denies even legitimate claims. If you’re in the market for insurance, there are three facts you need to know about any company you’re considering buying a policy from.
The insurer’s financial stability
The most crucial thing to know about an insurance company is whether it has the cash on hand to cover claims made on its policies. The best-written policy in the universe won’t do you much good if the company selling it to you goes bankrupt when too many people actually try to actually use the insurance it sold them.
States set minimum reserves insurers are required to keep on hand to cover claims, but as the name implies, these are minimums—sometimes calculated as a percentage of potential claims, sometimes based on other financial factors. Insurance companies can’t legally fall below those reserves, but the reserves are only intended to prevent a total market collapse. In reality, insurers should have a lot more on hand, especially if there’s a possibility of a large number of claims being filed simultaneously (e.g., homeowners insurance claims in the wake of a disaster like a flood or wildfire). It might sound impressive that a small, regional insurance company has $100 million on hand to cover claims—but that looks like small potatoes if they have $1 billion in potential claims at any given time.
You can find a financial stability rating for most insurers over at AM Best. You’ll need to create a free account to search the database, but once you do, you’ll be able to see at a glance the “Financial Strength” rating of an insurer, which can range from a “superior” A++ to a “Poor” D. The website also offers a “Financial Size Category (FSC)” that offers an approximation of how much money the insurer has on hand, ranging from I (less than $1 million) to XV (at least $2 billion). A small, regional insurer might only have a few million bucks in the bank, but if its overall rating is A++, it’s still considered financially sound.
The insurer’s claims record
Getting a good deal on an insurance policy is only useful if the insurer actually approves and pays out for legitimate claims. I once had a homeowners insurance policy that seemed worse than useless—though it satisfied my mortgage provider’s insurance requirement, it never once paid out on a claim. Sure, it always had a reason my claims weren’t technically covered, but that didn’t help me in the moment. This is why it’s crucial that you research a company’s track record of denying or paying out claims before buying the policy.
Unfortunately, doing so can be difficult, because claim approval data isn’t easy to find. Insurers aren’t required to make it available to the public, so they simply don’t.
What do you think so far?
There are some resources, however, that can at least give you an idea about a company’s history of claim approvals and denials. Plans sold through Affordable Care Act marketplaces are a bit more transparent, and you can find past denial rates at the Kaiser Family Foundation site, which offer some clues. You can find studies online that offer up some details about which companies deny the most claims, like this one from ValuePenguin, showing that UnitedHealthcare rejects a third of claims from its customers. It might take some muscular Googling, but information about denial rates can potentially be pieced together this way—and if you see denials from a potential insurer noted over and over again in these studies, you might want to reconsider buying from it.
The insurer’s customer satisfactions scores
Finally, even a company that has a reasonable claims approval rate and is financially stable can be a poor choice if working with it is a miserable experience. Before you buy insurance, you should know one more thing: The satisfaction level of current and past customers. It’s not so much a hard number as it is a vibe, but it’s an important piece of data nonetheless.
There are three sources where you can get a sense of customer satisfaction about an insurer before you buy a policy:
State insurance departments. Each state has an insurance department that regulates insurers writing policies in that state. These departments often publicly list complaints made against insurers on their sites. You can find your state’s insurance department through the National Association of Insurance Commissioners (NAIC) website.
NAIC. Speaking of the NAIC, it also maintains a database of insurers that includes complaint reports. Search for your prospective insurer and see how many complaints are lodged against it, what the trends suggest, and how they compare to competitors.
An online search. Finally, people tend to complain publicly when large companies treat them poorly, so checking social media and other websites for mentions of an insurer can yield some real-world insights into what it’s like to own a policy from it. Keep in mind that almost every insurer will have some complaints against it—people who have had bad experiences tend to be more vocal than those who are completely or even mostly satisfied— so you’re looking for volume and trendlines (i.e. a lot of complaints over a long period of time).