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Is Your Car Insurance Company Financially Secure?

By Abbey Wagner, InsWeb
auto insurance quote

Yes, it is important to get a low-priced auto insurance policy so you can spend your hard-earned money on other things. Yes, it is vital you find the policy that best suits your needs. But what may be more important (and is a factor many people do not take into consideration when shopping for insurance) is that the company you choose is financially secure. If you're paying money for insurance, you want to rest assured that you're covered, and that your premium payments will ensure a timely payout if you ever find yourself with a serious claim. How would you feel if your insurance company told you they are in financial trouble and are unable to pay your claim? As much as we like to believe our insurance company is financially solid, and will be there for us in times of trouble, unfortunately, this is not always the case.

Many people buy into the "bargain basement" mentality; they buy the lowest priced insurance they can find to keep more money in their pockets. Understandable, right? We all want to save a few dollars where we can, especially when purchasing an intangible product like insurance. But an unfortunate side effect of these "bargain basement" insurance companies is their lack of stability, and potential lack of available funds to pay claims when needed. Often one or two major claims can have serious financial consequences for a small financially strapped company, and the rest of their customers may find themselves in a difficult situation if they should get into an accident.

Luckily, the government has built a safeguard to protect insurance consumers from insolvent insurance companies (an insolvent insurer is an insurance company that is unable to meet its financial obligations). Insurance companies are not eligible to file for bankruptcy under the federal bankruptcy code, but if they become insolvent, the government can step in. State-run insurance guaranty associations, which are supposed to pay claims for insolvent insurance companies, exist in each state. However, while these associations are an important safety net for insurance consumers, they are by no means perfect. Most of the guaranty associations have caps on the amount they will pay out on a single claim, and most payouts are subject to long delays, as state courts and state insurance departments control the associations.

The bottom line is this, it is very important that you pick an insurance company with a good financial rating so the claims process works as it's designed to. How do you go about doing this? There are many rating companies out there to help you make an educated choice. Rating systems vary from company to company, but most of them use some form of a "report card" style rating method (A-F), with many using pluses and minuses (A+ or A-), and double or triple letters (AA or AAA+) to give insurance consumers as specific a rating as possible. The ratings reflect the financial security of both the individual insurance company and sometimes the holding company it is a part of, and are based on financial information the companies are required to provide to the government, as well as information provided directly to the rating companies. The most well known of these rating companies are Standard and Poor's, A.M. Best, Fitch Ratings, Moody's and Weiss Research. Although researching an insurer's financial standing can take quite a bit of time and effort, InsWeb has already done the work for you. We only provide quotes for you from companies rated highly by Standard and Poor's and A.M. Best.

Now we all know price is still a major factor in choosing an insurance company. Non-profit organizations like the Insurance Information Institute recommend that you get at least three price quotes before you select an insurance company. An online marketplace such as InsWeb is the perfect place to do such research quickly and easily.

Remember, price is only one factor in selecting an insurance company. Be sure you also make an educated choice by including the financial stability of a company in your decision process.

You can start here to shop for online auto insurance.

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