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UPDATED: Mar 13, 2020
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Auto insurance is one of those things that most people don’t want to shop for. It doesn’t matter if you enjoy spending money or you’re a frugal individual who penny pinches at every turn, shopping for insurance simply isn’t fun.
Although it’s hard to make buying something like insurance enjoyable, it’s one of those things that you can’t avoid doing unless you choose not to own a car.
Since most people don’t want to give up their right to car ownership just so they don’t have to shop for insurance, a majority of adults will take on the task of choosing an insurance company.
Unfortunately, a large percentage of insurance consumers make their choices based on price. While price is important, this decision could be a huge mistake.
Compare car insurance rates and options by using our free quote tool above.
Here’s what you should do to find the right insurance company:
Why is low pricing not always a good sign?
Low pricing is good for certain consumer goods. If you know you want a specific product sold by a specific manufacturer, you can call around to different retailers and find the one with the best deal.
You could even shop from reliable eCommerce shops online and you know you’ll get the same quality product. Return policies might differ from retailer to retailer, but the quality of what you’re buying won’t change.
When you’re buying an intangible product like insurance, it’s much different. A low price isn’t always a great deal because of how the insurance industry works. Insurers must charge people adequate premiums for the risk they present.
If someone presents a high risk of filing a claim, they need to pay more than a low-risk driver.
When premiums are set low to attract customers, it puts the company at-risk of going out of business.
The rate filing needs to consider both risk and competition, not just one of the two. As soon as people begin to file claims through their carrier, they will have to start paying out.
This means that claims could be denied and the insurer could easily go bankrupt. It’s best to find a financially strong company first.
The first factor to consider whenever you’re comparing insurers with one another is the financial strength. When a company is financially strong, there’s no problem looking at pricing after.
It’s when the company is known to be unstable financially and they also offer extremely low premiums is when you should be a bit concerned.
What does financial strength mean?
Financial strength is a gauge that’s used to measure the reputation of financial institutions that serve the public.
Financial statements that are reported will be used to assess the company’s asset, their creditworthiness, and overall risk associated with doing business with the company.
Every insurance company that is licensed has a financial strength record that consumers can access. If the company is considered financially strong, it means that they are able to easily pay claims and they are not at-risk of going out of business.
Generally, it’s carriers that have poor financial ratings that attempt to deny liability for claims because they can’t afford to pay out.
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How do you look up a carrier’s financial strength?
There are a few different ways you can go about looking up your insurer’s financial strength. If you’re a finance grad and you understand financial statements that are released to the public, you can assess the health of a company on your own.
Since most people don’t know have to translate the numbers into a grade, it’s better to turn to consumer rating reports.
There are a few different consumer agencies that will assess every company’s financial records and assign that company a financial strength rating. The rating is assigned in the form of a letter grade.
While each grading system differs, most of the agencies use A++, A+, A, and A- ratings for financially strong carriers. Here are a few financial strength agencies that you can trust:
- Standard and Poor’s
- AM Best
Licensing is very important when you’re buying insurance. You’re not the only one who needs an active license. Both the agent selling you your coverage and the company providing the protection must have a producer and a company license through the Department of Insurance.
Even though licensing is a requirement, there are companies that still sell insurance in states without active licenses. This situation happens most often online.
If you’re going to shop around for insurance, you need to verify the company’s licensing status through your state of residence by looking up their NAIC license number. You can find the licensing status by using the license lookup tool through the official DOI website in your state.
Why is licensing so important?
Licensing requirements that are in place are actually there to benefit you. The Department that does all of the licensing will oversee the operations of insurers to ensure they are following the rules.
There are a lot of regulatory rules pertaining to rates and claims that all companies are required to follow.
If a company is using unfair tactics to attract customers or they are denying claims for no reason, the department can suspend or revoke the license.
Without a regulatory body in place to watch the operations of carriers, you would have nowhere to go when you need to file a complaint.
Where can you find out about consumer complaints?
Consumer complaints filed with either the Department of Insurance or the National Association of Insurance Commissioners are public record. You can see the official complaint and the result by looking at the Consumer Information Source.
Using this information will help you avoid companies with loads of founded claims.
Choosing the right car insurance company can be a task in itself. Use the resources available to you online. After you’ve narrowed your list of options, get quick quotes for coverage by also using the Internet.
When you use our online quote comparison system, you can price the cost of insurance quicker than ever. Enter your zip code below to begin.