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What is the best insurance company?

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June 12, 2014 6:47PM

Identifying the "best insurance company" is, in part, a personal evaluation. Individuals and businesses with different insurers have different experiences with them. Their relative satisfaction with the insurer results from claim experience and customer service in the event of a loss. Promptness, efficiency, and perception of fairness in handling claims greatly influences the insured's feelings about the insurer.

Usually, customer service in the claims process is an important part of the services by person or entity that sold the insured the insurance. This is especially true when that person or entity is an "agent". An agent is often considered to be a representative of the insurer, rather than of the insured. Therefore, the agent's actions may reflect more closely upon the insurer than that of a broker. A broker is often considered to represent the interests of the insured (the buyer of the insurance), and therefore may be thought of as "once removed" from the actions of the insurer. However, the distinction between agent and broker is becoming blurred.

Another important aspect in choosing an insurer is its financial strength. That is, insureds must be concerned with the claims-paying ability of the insurer. This is usually not a problem if one claim is made at a time, however that is not how insurance works. Instead, the insurer insures many people and entities, so odds are that many claims will occur at or about the same time--such as in hurricane season.

It is hard for the average buyer of insurance to determine the insurer's financial strength, but there do exist several entities that specialize in those assessments. Two of the most prominent are A.M. Best and Fitch's, each of which have measures of financial strength and rate insurers according to them. Licensed agents and brokers use those ratings, among other factors, to recommend insurers to prospective insureds.

Many insurers use essentially similar policy "forms" for issuing commercial insurance. A policy form is the basic written contract which defines the insurer's and the insured's duties and responsibilities, and specifies the amount of insurance coverage available, the premium to be paid by the insured, and duration of coverage. Differences may exist between insurers as to options offered, such as automatic inflation-related increases in the basic coverage amount. Some options result in an increase in premium.

Finally, it is important that insurance be obtained only from an insurer licensed to transact business in the state in which the insured is located. Insurance is regulated by the individual states, and insurers that wish to transact business in a state must generally undergo a rigorous examination by the regulator. The examination is especially concerned with financial stability, but also with background and experience of the principals and officers of the company.

In contrast, there frequently come to the market companies that have not gone through the regulatory process and that are not licensed. This often happens when legitimate insurance of a particular is difficult to obtain due to market conditions. These are usually scams which are established merely to accept premiums and that have no intention of paying claims.