Choosing an Insurance Company
Approximately 1,600 companies sell insurance in Oregon. Most insurers doing
business in Oregon are financially healthy. However, overly aggressive competition,
poor investments, and mismanagement may mean some insurance companies become
insolvent. That's why consumers need to know how to choose the healthiest
insurance company possible.
The information on this page should help you in choosing a reliable insurance
company and give you some tools for making a better decision. You should know
there is no secret to choosing a safe company. Remember, you want to make
sure the company you select is reliable enough to help you when you need it.
Finding the best company for you requires a little investment in time and
work, but the rewards of a careful decision justify the effort.
Article Index
This guide has seven sections:
Insurance basics
Buying insurance should begin with the basics: a licensed agent, a policy,
and a company that meet your coverage and service needs.
How do I choose a trustworthy insurance agent?
Your agent can be as important as your doctor or lawyer. It's best to choose
carefully and take time with the decision.
- First, make sure your agent is licensed. Call the Insurance Division's
Agent Licensing Unit at (503) 947-7981 if you are not sure.
- Second, ask around. You may want to find out if your local Better
Business Bureau has received complaints about a particular agent. Ask the
agent for recommendations from some other clients.
- Third, ask agents what kind of service you can expect from them.
Will they regularly evaluate your insurance needs? Will they help when it's
time to make a claim?
- Finally, remember who your agent works for. Agents work on a
commission basis for insurance companies. Legally, they do not work for
consumers.
How do I decide which company is right for me?
Do I base my decision on benefits or premium?
While the price you pay is important, buying the cheapest policy is not necessarily
a good idea. Insurance that sounds too good to be true probably is
too good to be true! Then again, looking only at benefits could result in
paying a higher than necessary premium. You should consider all of the following
when choosing a company and a policy:
- Premium
- Benefits, including any coverage exclusions or limits
- Service (What's involved in making a claim?)
- Renewability (How easily can you be canceled?)
- Financial strength and reliability of the company
- Company management philosophy toward service, claims, and financial management
- How long the company has been in business offering similar policies
The Oregon Insurance Division has several publications
to help you choose a company. Some of these publications even compare premiums
and benefits.
How do I know if a company will be responsive when
I have a claim?
There are two aspects to a company's responsiveness to claims: commitment
to customer service and financial ability to pay claims.
It's important to ask questions about the claims process before you buy a
policy. For example, some companies may not need any paperwork to pay a claim.
For others, the process can be much more time consuming. Another way to evaluate
a company's service record is the Insurance Division report called Oregon
Insurance Complaints. Part One of the report ranks insurance companies based
on the number of complaints consumers make. Most complaints the Insurance
Division receives are about how companies handle claims. Look here
for information on how to get a copy of this report.
As for the long-term financial ability to pay claims, that's what this information
is all about.
Return to the article index.
Learning about the health of your company
Increasing numbers of Oregonians are concerned about the long-term financial
health of insurance companies. To people who use insurance for investment
purposes or to fund their retirement, financial health is especially important.
What tools can help me choose a company?
IRIS test results, examination reports, annual and interim financial statements,
and CPA reports are available in the Insurance Division's Company Section.
IRIS test results IRIS stands for Insurance Regulatory
Information Systems. Insurance experts have developed a series
of tests for insurance companies. IRIS test scores warn regulators when
a company is operating outside the normal range.
Examination reportsPeriodically, every insurer is examined by its home state. Examination reports
are available in the Insurance Division for your review. If you choose to
read these reports, you should pay particular attention to the examiner's
recommendations and comments. These useful remarks are generally found near
the end of the report.
Annual and interim financial statementsEach year, every company must file a financial statement with the Insurance
Division. Some companies file such statements every three months. These statements
describe the financial condition of the insurer during the prior year. A financial
statement contains the insurer's balance sheet, income statement, premium
information, asset exhibits, and investment schedules. While these can be
complicated, they provide some very useful insight into an insurance company's
financial condition.
For information on the contents of the financial statements (assets, liabilities,
surplus, and elements of insurer's investment portfolios), call the division
or e-mail us. This information is listed at the end of the page.
Certified public accountants' reportsAs of June 1992, reports from certified public accountants (CPAs) are also
filed with the Insurance Division. These CPA reports supplement the insurer's
annual statement and are another way of looking at the numbers.
Independent rating organizationsAt least five organizations rate insurance companies based on their financial
condition and claims-paying ability. Health care service contractors (like
Blue Cross & Blue Shield) and health maintenance organizations are not
rated by these organizations. The public library normally has at least one
of these insurance rating reports, but it is helpful to compare at least two.
Some agents also have this information. Carefully review how each rating organization
makes its decisions. Each rating organization has its own philosophy and standards.
By comparing several ratings, you will begin to see a more complete picture.
Here is a list of the better-known rating organizations:
- A M Best
Oldwick, NJ 08858
(908) 439-2200
Telephone ratings are available for a per minute charge. You also can buy
booklet-form rating summaries and individual company reports. The A M Best
books are generally available at public libraries.
- Duff & Phelps Insurance Claims-paying Ability Rating Service
55 East Monroe, Suite 3500
Chicago, IL 60603
(312) 368-3157
No charge for ratings over the telephone.
- Moody's
99 Church St.
New York, NY 10007
(212) 553-0377
No charge for up to three ratings over the telephone.
- Standard & Poor's Executive & Editorial Offices
25 Broadway
New York, NY 10004
(212) 208-1524
Up to five ratings with some brief explanation of the ratings free of charge.
- Weiss Ratings Inc.
4176 Burns Road
Palm Beach Gardens, FL 33410
(561) 627-3300
1-800-289-9222
Charges for ratings.
Return to the article index.
Where can I get help?
The Company Section staff in the Insurance Division will explain and discuss
any insurance company's financial condition with you, especially if you have
questions about these reports, however, we cannot recommend which
company is best for you.
After you have reviewed these materials and talked with the Insurance Division's
staff, you should have a pretty good picture of an insurance company's health.
If you are still unsure about your choice, you may find comfort in the fact
that most products of insurers licensed to do business in Oregon are guaranteed
by one of the state's guaranty associations.
What will these tools tell me?
When you are looking for ways to measure the financial health of an insurance
company, you can get many different numbers. Some things that can help you
learn about the health of a company include the company's assets, including
junk bond holdings, real estate holdings, percentage of mortgage loans in
default, and liabilities. Here is what each of these categories means and
how it relates to a company's financial condition.
- Assets An insurance policy is a commitment to pay benefits in exchange
for premiums. To assure that benefits can be paid, insurance companies invest
premiums. The most significant forms of investments are bonds, stocks, and
mortgage loans. These investments are the company's assets, and the financial
health of the company depends on the quality of those investments.
- Reserves Insurance reserves are money set aside to assure that
future policy benefits can be paid. These reserves are required by law to
make sure companies can keep their promises to policyholders and their beneficiaries.
Laws and rules set minimum standards for reserves. These standards are based
on expected costs. Reserves must be certified as adequate. Insurance companies'
largest liabilities are reserves. In addition to reserves, insurers generally
have liabilities for commissions, expenses, taxes, licenses and fees, federal
and foreign income taxes, and declared and unpaid dividends.
- Junk bonds Junk bonds, often known as high-yield bonds, typically
are bonds that can lead to higher profits for an insurance company, but
also carry a greater risk of loss. In Oregon, insurance companies can have
no more than 20 percent of their total assets invested in junk bonds.
- Real estate Generally, an Oregon insurer is permitted to have no
more than 5 percent of its total assets in real estate held for investment
purposes. Real estate used primarily as an insurance company's principal
place of business can be no more than 10 percent of its assets. These limits
help to assure that a company does not invest an overly large amount in
non-liquid assets.
- Mortgage loans Mortgage loans are a significant category of investments
held by insurance companies. A measure of the quality of these loans is
the percentage in default. Oregon insurers are permitted to own only the
most secure category of mortgages: mortgage loans secured by first liens.
Mortgage loans cannot exceed 80 percent of the appraised value of the underlying
property.
What do these numbers mean?
An insurance company's assets should be diverse and of high quality. When
you look at the above numbers for any particular company, you should look
for many different kinds of strong investments. Risky investments include
junk bonds and investments in mortgage loans with a high rate of default.
Ideally, a company will balance the rate of return on its investments with
the security of the investments.
Return to the article index.
What happens when a company becomes insolvent?
When a company is insolvent, it is unable to pay the costs of doing business.
Oregonians who buy most kinds of insurance sold in the state are protected
if an insurance company becomes insolvent. Two funds provide this protection:
the Oregon Life and Health Insurance Guaranty Association (OLHIGA) and the
Oregon Insurance Guaranty Association (OIGA).
How do they operate?
When an authorized Oregon insurance company becomes insolvent and is liquidated
by a court order, the guaranty funds will pay covered claims. The funds will
not pay any claim the insurance company would not have paid. Claims are paid
according to the terms of the original insurance policy.
Who is covered?
Both funds cover only Oregon residents. They pay only claims against insurers
that were licensed to do business in Oregon at the time of the insolvency.
Most insurers licensed to do business in Oregon must belong to one of the
associations.
What is covered?
The following two charts show the coverage and limits of the two guaranty
funds.
Oregon Insurance Guaranty Assoc. (property and casualty)
10700 SW Beaverton Hwy., Ste. 426
Beaverton, OR 97005
(503) 641-7132
| Type of Insurance |
Limits of Coverage |
| Auto, liability, and homeowners |
$300,000 |
| Workers' Compensation |
No limits |
Not covered:
- Title insurance.
- Surety or builder's bond insurance.
- Credit insurance.
- Mortgage guarantee insurance.
- Home protection insurance. (e.g., home warranties)
- Wet marine and transportation insurance.
Oregon Life and Health Insurance Guaranty Association
PO Box 4520, Salem, OR 97302
(503) 588-1974
| Type of Insurance |
Limits of Coverage |
| Life, Annuity and Accident |
| Health Insurance: |
| Death Benefits | $300,000 |
| Life Insurance Cash Value | $100,000 |
| Present Value Annuity Benefits | $100,000 |
| Health / Disability | $100,000 |
| Maximum / Individual / Insolvency | $300,000 |
Not covered:
- Most variable life and annuity policies or parts of policies with variable
earnings potential. If part of a variable life or annuity policy is guaranteed
by an insurance company, that part will be covered by the Oregon Life and
Health Guaranty Association up to the association limits.
- Any annuity contract or group annuity certificate that is not issued to
and owned by an individual. Some pension funds have such investments. A
governmental entity's employee retirement plan is covered.
- Policies issued by health care service contractors (such as Kaiser Permanente
or Blue Cross & Blue Shield) are not covered. However, a separate law
protects these policyholders. Health care service contracts include a hold
harmless provision that shields the policyholder from collection by health
care providers and pharmacies in the event of an insolvency.
- Self-insured plans.
- Policies issued by fraternal benefit societies.
- Interest rates exceeding a certain standard are subject to adjustment.
Return to the article index.
Shopping checklist
- Find a reliable, licensed agent.
- Gather all possible facts about an insurance company, its agent, and its policy
before you make a decision. The Oregon Insurance Division has publications
that can help.
- Check with at least two rating organizations, as each looks at different things
when assigning ratings.
- Talk to the staff at the Insurance Division's Financial
Regulation Section, particularly if you are planning to make a large investment
in an insurance company or if you have questions.
- Don't believe extravagant promises made by insurers. Remember, if an insurance
policy promises an extremely high rate of return, there is probably a higher
risk of loss.
- Look out for the warning signs and ask yourself if there have been any major
changes.
- How does the past performance of the company compare with its current
practices?
- Has the company's premium income increased significantly in a short period
of time?
- Has the company recently begun to collect much larger premiums?
- Has the philosophy of the insurance company's management recently changed?
- Become familiar with the language of insurance as you
begin to shop.
Remember this is an ongoing process. You should be prepared to do a thorough
review on an ongoing basis.
Return to the article index.
Publications
A variety of publications are available from the Oregon Insurance Division.
You may view and download these publications or request a printed copy from
our Publications
Web page.
Glossary of terms
- Annual statement The annual report made by the insurance company
to the Insurance Division. This report details a company's assets, liabilities,
receipts and payments, and other information required by the division.
- Annuity An insurance policy that provides a fixed income to the
policyholder or other beneficiary for a lifetime or over a limited number
of years.
- Assets What is available to pay an insurance company's debts. Assets
include real estate, bonds, mortgages, stocks, and cash.
- Capital What an insurance company sets aside for investment.
- Examination An on-site look at an insurance company's records and
financial condition. Examination staff also audits insurance company conduct
to assure that claims are handled appropriately.
- Exclusion A condition under which an insurance policy will not
pay. Typical exclusions include suicide, and health care received outside
the United States.
- Guaranty association An organization created by Oregon law to
protect consumers when an insurance company becomes insolvent.
- Health care service contractor A corporation typically connected
with a group of hospitals or doctors that provides subscribers with basic
health services. Health maintenance organizations are health care service
contractors.
- Hold-harmless agreement In Oregon, subscribers of health care
service contractors (HCSCs) are not responsible for charges if an HCSC becomes
insolvent.
- IRIS Insurance Regulatory Information Systems.
- Junk bonds High-yield bond investments that also may be high risk.
- Liabilities The financial obligations of an insurance company.
The liabilities include reserves (see below) set aside to pay future claims.
- Lines of insurance The types of insurance policies offered by
an insurance company such as auto, health, and life.
- Rating organization An independent organization that reviews the
financial condition of insurance companies and provides a rating based on
its review. These organizations may charge insurance companies to perform
this review and also may charge consumers who want rating information.
- Reserves The funds set aside by an insurance company to pay future
claims.
- Surplus The difference between an insurance company's assets and
liabilities.
- Variable Annuity An annuity (as above) that pays according to
the success of the insurance company's investments. Therefore, the amount
of the payments may fluctuate.
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