When a client comes to me for advice on their Central Florida homeowner’s insurance claim, one of the questions they usually ask is whether they have one of the “good” insurance companies. That’s a complex question that depends on a wide variety of factors. Most people base their answer on what happens after they make a claim for property damage. But can you tell whether your insurance company is good before you make a claim or, better yet, before you purchase their insurance policy?
The answer is yes, but how? It won’t surprise you to hear that, like all businesses, insurance companies exist to make a profit. Recently, some Florida insurance companies have gone insolvent, e.g. Windhaven Insurance Company. This has left their policyholders and other claimants to depend on FIGA (the Florida Insurance Guaranty Association) to pay their claims. This is not a situation you want to find yourself in when your home or business is damaged.
In order to assess the profitability of your insurance company, you need to pay attention to three important ratios: the (1) loss ratio, (2) expense ratio, and (3) combined ratio. Those ratios use the insurance company’s loss adjustment expenses (LAE), or the expenses that are incurred when processing, investigating and settling claims made by insureds, in the calculation.
According to Rob Galbraith, in his excellent book, The End of Insurance As We Know It, the loss ratio is a common industry metric of the total amount of losses and LAE paid compared to premiums, expressed as a percentage. The expense ratio is “the dollar cost of all expenses other than LAE ratioed to premium (revenue).” Using those two metrics, the combined ratio is “the sum of all losses and expenses divided by the total premium.”
How can you find this information? I suggest starting with the information provided by insurance companies to the National Association of Insurance Commissioners (NAIC). What are you looking for when you’re there? You’re looking for numbers that are less than 100 in those ratios. Why? Because that means that the insurance company is profitable on their operations. These numbers changed every year; so, don’t rely on a single year’s report. But, if your insurance company is consistently underperforming, perhaps it would be a smart idea to talk to your agent or do some shopping.
Most importantly, if you or someone you know has a Central Florida homeowner’s or commercial insurance claim, be sure to call Clint & Company, P.A. before you make a claim. We are located in Orlando, FL and proudly serve the entire State of Florida.
Call now. (407) 212-7598.