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 brochure has been provided 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 the Nebraska Department of Insurance personnel 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.
What is the likelihood that my insurance company will fail?
Insurance company failures have been rare. Recently, 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 -- fewer than one percent of American compaines were seized by state officals over the last year.
When I am buying or renewing my insurance, how can I protect myself from companies in bad financial shape?
Shopping for insurance
The first step in selecting a financially strong insurer is to shop around. Talk to representatives from a number of different companies. Tell them what your insurance needs are and ask what their company will charge to cover you.
When you talk to company representatives, 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 list of companies you are considering, there are a number of steps you can take to learn more about their financial condition.
Make sure the company may legally do business in your state.
Call the Nebraska Department of Insurance to find out if the insurance company is permitted to do business in our state. If not, don't buy insurance from that company. Tell us that the company is trying to do business in our 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. (Guaranty Funds are explained later in this brochure - read on.)
Check with rating agencies
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. Be sure to ask about the scale use 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 rating may 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.
Fitch Investors Service
Moody's Investors Service
Standard & Poor's
Weiss Research, Inc.
If it seems too good to be true, it probably is.
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-risk investments.
What happens when a company becomes insolvent and is liquidated?
A safety net exists 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 Fund is established by Nebraska law and is composed of licensed companies in the state. The fund pays the claims of policy holders and other claimants of an insolvent company. The money used comes from assessments made against all of the insurance companies that are members of the Guaranty Fund.
Neither NICA nor the Nebraska Department of Insurance endorses any firm, individual or product.
Nebraska Department of Insurance
941 "O" Street, Suite 400
Lincoln, NE 68508-3639
Phone (800) 234-7119
TDD (800) 833-7352
VOICE (800) 833-0920