The situation in the economic world is very grim today. It is a global situation affecting everyone and everything. Naturally one gets worried if insurance companies and the insurance money will be affected by the present crisis.
Taking risks is what insurance is all about and it does make you wonder if insurance companies too are taking risks and playing with your money. And, with the present situation in mind, can you really hope and expect that the insurance company will pay and settle the claim or are they going to throw up their hands and give up?
There is good news for buyers of all types of insurance. All insurance companies have strict requirements for setting aside money today which is called as loss reserves, which will be used to pay claims in the future, whatever the economic situation is. Every insurance company is monitored by a State department of insurance and each company has to report its financial status every year. The State will carefully study the loss reserves of each company and ensure that their customers are fully protected.
Some insurers are owned by companies which have a wide range of businesses but the financial condition of the insurance company is closely regulated and may not be subjected to the same types of risks as those in unregulated industries. The recent economic trends are alarming but many insurance companies have assured their customers that they are closely looking after their finances and the customers need not worry.
The A M Best Company is an independent rating company that assesses a company’s ability to meet its financial obligations of the future and to make the claims payment. Hence every potential insurer can check the A M Best Company’s ratings of the insurance company from which they would like to buy insurance from.
In case an insurance company is in poor financial condition, state insurance regulators can take action to save the company. In the event they are not successful, then the company becomes insolvent and declares bankruptcy. In such cases the State insurance department is responsible for making sure that the current and future claims will still be paid on behalf of the insolvent company.
There is one more safeguard for insurance buyers in this critical economic crisis. Many states have insurance guaranty associations which are known as guaranty funds for the purpose of paying the claims of the insolvent company. Insurers should become members of such guaranty associations of their State. Some states like New York have a pre-assessment system which makes insurers contribute some money each year to a permanent insolvency fund. This will be made available to pay claims when a company is not able to do so. Either way the consumers are protected.
However if there is any doubt in the minds of the insurers they are free to switch to another insurance company but they should do so only after making exhaustive inquiries and assuring themselves that the new company is better than the old one.
