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.
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.
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.
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
There are three sources where you can get a sense of customer satisfaction about an insurer before you buy a policy:
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).
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