If you think that all the media coverage of insurance company shenanigans has made their operations transparent, then as my mother used to say, "You have another think coming.
" By and large we're a believing bunch.
That's a big part of what go us into the financial mess we're working our way out of right now.
Hopefully we've learned that somewhere along the line we need to quit accepting what other people say, do our own investigations and make our own decisions.
A good place to start would be with the insurance companies we choose to deal with.
Insurance is an important and necessary part of our financial security and wealth development process.
So we need to pick the right companies.
The ones that will be able to keep their commitments and meet their contractual obligations.
So how do we determine which ones are good and which one's aren't? We'll just look at the ratings, right? Wrong! The first problem with looking at the ratings, is the ratings themselves.
For example; when I see a company rated A+, I used to think "Wow, it just doesn't get any better than A+.
" Well it does.
Fitch for example used the A+ rating, but most of us don't know that they use other ratings that are even better; like AA-, AA, AA+ and AAA.
So if the ratings don't really make sense to us, maybe we can make it easy and just look at the companies the rating groups classify as "Excellent.
" That's a little problematic too.
Consider the fact that over 80% of the insurance companies rated by Standard & Poor's, they rate "Excellent.
" To further complicate this issue it would be well to note that Standard & Poor's, Fitch and Moody's have earned (hold on to your hat) ...
billions of dollars from rating fees.
Much of that from initially rating mortgage-backed securities as "Investment grade" and then later downgrading them all the way to "speculative.
" It kind of makes me wonder if the ratings they give ever have anything to do with the payment of fees to the raters.
I have my suspicions and I'll bet you do too.
It put us all in a bad position.
The industry and ratings seem to have more twists and turns than a sack full of baby snakes.
So can we trust them at all? Yes, within reason.
I have a brass owl on my desk.
It's purpose is to remind me to keep my eyes open.
That's the way we should all deal with insurance companies; with our eyes wide open.
A.
M.
Best did a 30 year study from 1977 to 2007.
It produced some interesting results regarding insurers who were "impaired" one year after the rating.
Interestingly enough, of the companies rated in the Best top-tier, A+/A++, only 0.
06 percent were impaired a year later.
Two percent of those rates B/B- slid and 6 percent of those rated C/C- were down.
While those numbers look small, they represent a huge percentage difference.
The bottom two ranges showed that in actual operation they had a 33 to 100 times higher risk.
So the ratings had proven themselves reasonably accurate for Best.
So what are we to do? Homework! My kids will tell you that I have told them a thousand times (reasonably its probably well more than that) "The quality of your life is entirely dependent on the quality of your decisions.
So make good ones.
" It follows then that the quality of your experience with your insurance company is dependent on the quality of your decision regarding with which one you should do business.
Go ahead and have a little healthy skepticism.
When you need to make insurance-related decisions, shop around.
Check out all the ratings.
Look at the companies historical stock prices, profitability and growth.
Talk with agents from multiple groups.
Then take everything you've learned, sift out the hype and hyperbole the best you can, then see what the evidence leads you to decide.
You'll make better decisions, breath easier, and not have to watch the news every night to see if your insurer has gone bankrupt.
" By and large we're a believing bunch.
That's a big part of what go us into the financial mess we're working our way out of right now.
Hopefully we've learned that somewhere along the line we need to quit accepting what other people say, do our own investigations and make our own decisions.
A good place to start would be with the insurance companies we choose to deal with.
Insurance is an important and necessary part of our financial security and wealth development process.
So we need to pick the right companies.
The ones that will be able to keep their commitments and meet their contractual obligations.
So how do we determine which ones are good and which one's aren't? We'll just look at the ratings, right? Wrong! The first problem with looking at the ratings, is the ratings themselves.
For example; when I see a company rated A+, I used to think "Wow, it just doesn't get any better than A+.
" Well it does.
Fitch for example used the A+ rating, but most of us don't know that they use other ratings that are even better; like AA-, AA, AA+ and AAA.
So if the ratings don't really make sense to us, maybe we can make it easy and just look at the companies the rating groups classify as "Excellent.
" That's a little problematic too.
Consider the fact that over 80% of the insurance companies rated by Standard & Poor's, they rate "Excellent.
" To further complicate this issue it would be well to note that Standard & Poor's, Fitch and Moody's have earned (hold on to your hat) ...
billions of dollars from rating fees.
Much of that from initially rating mortgage-backed securities as "Investment grade" and then later downgrading them all the way to "speculative.
" It kind of makes me wonder if the ratings they give ever have anything to do with the payment of fees to the raters.
I have my suspicions and I'll bet you do too.
It put us all in a bad position.
The industry and ratings seem to have more twists and turns than a sack full of baby snakes.
So can we trust them at all? Yes, within reason.
I have a brass owl on my desk.
It's purpose is to remind me to keep my eyes open.
That's the way we should all deal with insurance companies; with our eyes wide open.
A.
M.
Best did a 30 year study from 1977 to 2007.
It produced some interesting results regarding insurers who were "impaired" one year after the rating.
Interestingly enough, of the companies rated in the Best top-tier, A+/A++, only 0.
06 percent were impaired a year later.
Two percent of those rates B/B- slid and 6 percent of those rated C/C- were down.
While those numbers look small, they represent a huge percentage difference.
The bottom two ranges showed that in actual operation they had a 33 to 100 times higher risk.
So the ratings had proven themselves reasonably accurate for Best.
So what are we to do? Homework! My kids will tell you that I have told them a thousand times (reasonably its probably well more than that) "The quality of your life is entirely dependent on the quality of your decisions.
So make good ones.
" It follows then that the quality of your experience with your insurance company is dependent on the quality of your decision regarding with which one you should do business.
Go ahead and have a little healthy skepticism.
When you need to make insurance-related decisions, shop around.
Check out all the ratings.
Look at the companies historical stock prices, profitability and growth.
Talk with agents from multiple groups.
Then take everything you've learned, sift out the hype and hyperbole the best you can, then see what the evidence leads you to decide.
You'll make better decisions, breath easier, and not have to watch the news every night to see if your insurer has gone bankrupt.
