One Way to Tell If Your Insurance Company Is Good

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.