Each year Bill Dougherty teaches business owners how to Avoid the 10 Critical Business Insurance Mistakes. He motivates them to “take charge of their insurance program” to Reduce Costs and Maximize Value.
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Not Paying Attention to your Carrier’s Financial Performance
Chapter 2: Not Paying Attention to your Carrier’s Financial Performance
Last month I provided you with specific actions to avoid Critical Business Insurance Mistake #1…Partnering with the Wrong Agent. I hope you are evaluating your current insurance provider to be sure you are working with a “10 Percenter”.
This month we turn our focus to Critical Business Insurance Mistake #2 that most insurance buyers and agents miss…”Not Paying Attention to your Carrier’s Financial Performance”.
Why is this important to you?
First, insurance carrier insolvencies do occur. Between 2000 and 2010 278 carriers were either declared impaired or went out of business.
A lot of agents will tell you “no worries each state has a guarantee fund that guarantees claim payments”. The real truth is that state guarantee funds are not a sufficient backstop to protect your business. Guarantee fund claim payments are delayed and, in the case of a major insolvency, don’t pay one hundred cents on the dollar.
You’re probably not going to face a carrier insolvency if you employ the right agent “A 10 Percenter”, but it’s still vitally important to monitor your carrier’s financial performance.
Why? Because a carrier’s financial performance has a direct effect on their appetite and their pricing of your business.
Carriers that are producing profit levels above the industry average will provide you with a more competitive insurance program. It’s that simple.
So how do you monitor a carrier’s financials?
The quickest and best method is to utilize A.M. Best Company, a world-wide credit rating organization dedicated to the insurance industry. Simply go on the website www.ambest.com, plug in your carrier and A.M.Best will provide you with the rating. A.M. Best’s highest rating is A++. Be sure your carrier is rated A- or better. Never allow your agent to place any portion of your insurance program with a carrier that has less than an A- rating!
There are also a number of other key financial indicators to watch.
Educated insurance buyers monitor a profitability indicator called “combined ratio”. Combined ratio is the combination of a carrier’s losses and expenses expressed as ratio to premiums earned. (Breakeven is 100) Ask your agent if your carrier’s “combined ratio” is above or below the industry average.
Remember, a carrier’s financial performance has a direct impact on your insurance program. Avoid Critical Business Insurance Mistake #2 by paying attention to your carrier’s financials.
Obviously there is a lot more to discuss on this topic.This is simply an executive summary of Chapter 2 of a two hour seminar. If you would like to discuss any of the details, please give me a call or just reply to this email.
Next month find out how to avoid Critical Mistake #3 “Failure to Review Coverage with your Agent Regularly”.
Bill Dougherty, EVP
True & Associates