Five Keys to Quality Insurance

March 10, 2017

Author: Dave Gardner

It’s a bill we pay every six months, yet if all goes well we never financially benefit from it.  It’s property and casualty insurance, which for most people means homeowners, auto, liability including umbrella coverage, and renter’s insurance.  You may have given little thought to your insurance company.  If you’ve watched sports on TV in the last few years, you’ve endured a barrage of ads from insurers that market directly to consumers, such as Progressive and GEICO.  But is it enough to have the cheapest insurance?  Consider these tips when reviewing your coverage.

Look to Consumer Surveys.  In insurance reviews with our clients, we ask about their experience with their insurer.  In most cases, they’ll respond that it has been a good experience.  Then we ask them about the number of claims with that company, and often they’ll respond, “none at all!”  It’s a clear although often overlooked point that you never know about the quality of your insurance until you file a claim.

Fortunately you don’t have to file a claim to assess if you have a good insurer.  Independent watchdog Consumer Reports for years has conducted a survey of tens of thousands of its subscribers regarding their claims experience and premiums for scores of insurance companies.  Although you’ll need to visit the library or pay for an online subscription to get the ratings, we can share some companies that have performed well.

USAA and Amica consistently offer lower costs and a positive claims experience, with high ratings for both auto and home insurance since at least 1999.  Qualifying for USAA coverage can be tricky as you generally must be in the military, a veteran, or a descendant of a USAA policyholder.  Amica has no such restrictions.  Perhaps it’s no coincidence that both companies pay dividends to its policyholders, unlike a standard for-profit corporation.  Other mutual insurance companies such as Auto Owners and Erie are offered by independent insurance brokers and also do well.

Insurers Who Pay the Most Claims.  Last year data analytics company ValChoice wrapped up an exhaustive study of looking at insurance companies in all fifty states.  The study revealed the ratio between the premiums a company collects, and the claims paid out each year.  You end up with a metric called the paid-loss ratio.  This study confirmed that dividend-paying, mutual insurance companies as a group paid out a much higher percentage of its premiums than public corporations.

Prefer Local Broker or Agent.  All things being equal, we prefer that clients have a local broker or agent for their property and casualty insurance.  You’re more likely to have a regular review of your insurance and receive useful insight into what coverage you may need.  Also key is how they respond if you have a potential claim.  The most valued insurance people discuss a possible claim to see whether or not it makes sense to file.  Let’s say you have wind damage on your property of $3,000 and you have a $1,000 deductible.  Does it make sense to file a claim?  Your local resource can help answer this question, while an 800 number may not impart the same wisdom.  Indeed, even talking about a potential claim with an insurance company could get recorded in industry databases.    Unfortunately, many of the best rated insurance companies including USAA and Amica are not offered by local insurance brokers.

Meet Every Year or Two to Review Coverage.   While we are not insurance experts, we see instances every year of clients who are woefully underinsured.  In the last year we’ve seen homeowners insurance with limits less than half of the replacement value of the structure.  We’ve also observed physicians and high level executives with no umbrella liability coverage.    Valuable items such as a $50,000 piano were failed to be covered through a special insurance endorsement.  These are omissions that generally do not happen if you talk to your insurance company every year or two.  If they don’t reach out to you, then make an appointment with them or find another insurer that has a process in place to keep your insurance current.

Little Reward for Loyalty.  Much like the cable and mobile phone companies, there seems to be very little reward for being a loyal policyholder.  The people who stay with their insurance companies for decades tend to pay higher premiums than the new customers.  Every few years you should shop around for insurance quotes, preferably with an independent insurance broker.

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About Dave Gardner

David Gardner is a certified financial planner with a practice in Boulder County and can be reached at dave@confluencefa.com and at twitter.com/Dave_CFP.