When insurance companies want to convince people they should insure with them, they often cite their long history and size, usually expressed by the dollar amount of their assets. For example, Prudential Financial, Inc., a major life insurance & financial services company, states on their website they have been in business for 137 years and have $1.061 trillion of assets under management. Does this make Prudential better than a competing company like TIAA-CREF Life Insurance Company, which has been in business 95 years, and has only $520 billion assets under management? Is Prudential financially stronger than TIAA-CREF? Not according to the rating agency AM Best, which rates Prudential at “A+” for financial strength, but gives the higher grade of “A++” to TIAA-CREF. State Farm states on its website it has 81 million policies & accounts in the USA & Canada. State Farm is the largest insurer of cars in the US, and its subsidiary, State Farm Mutual Automobile Insurance Company, has close to 115 billion dollars in assets for 2012 (according to the financial statement from its website). In comparison, Auto Owners Insurance has less than 6 billion dollars in written premium. But Auto Owners Insurance scored higher than State Farm in both the 2013 JD Power US Property Claims Satisfaction Study and the 2012 JD Power 2012 US Auto Claims Satisfaction Study. It’s good to see any potential insurance company has a long history, and a significant asset base, but bigger does not mean better for the customer, beyond a certain point. When it comes to getting a competitive price for insurance, size does not matter at all. However, there are pros & cons for both small & large companies. This blog post will give you tips about how to consider a company’s size, when buying auto, home, or life insurance.
Is a small or big life insurance company better for you?
In my opinion, there are no advantages offered by choosing a large life insurance company over a small life insurance company. There aren’t any investments in technology or advantages because of size, that improve the life insurance claims settlement process. What is of paramount importance, is choosing a financially strong life insurance company, with a long history of operating over different business cycles. For example, some long established mutual life insurance companies will show you their long history of continuously paying dividends on their participating whole life insurance policies. A long history of top ratings grades, with all the rating agencies, is extremely important for permanent life insurance, because if you buy a policy at age 35, you need to be assured the company is likely to be still in business and financially sound, if you die 60 years later, at age 95.
However, financial strength ratings are also important when buying term life insurance, because you want the company to be around, if you die 15 years after buying a 20 year term policy. Shortly after I entered into the insurance business in 1990, I saw the collapse of Mutual Benefit Life Insurance Company, due to large, imprudent investments in junk bonds. Although many states have guarantee funds to provide some settlement for the claims of insolvent life insurance companies, and it’s likely another, more financially stable, life insurance company will take over the obligations of the insolvent insurer, you don’t want your loved ones to wait years to get a life insurance settlement, or a reduced settlement, if you are unlucky to die while your life insurance company is being taken over due to insolvency.
Before you buy life insurance, you should know its rating with all the major rating agencies before purchasing. I like Weiss Ratings, in particular, because unlike the other ratings agencies, it is not paid by the companies it rates, so there is little conflict of interest. Weiss has a history of conservative rating, so unlike other companies, a “B” rating with Weiss may not be a cause for concern.
Is a small or big auto insurance company better for you?
There can be technological advantages for choosing a large auto insurance company over a small auto insurance company. These advantages can lead to faster claims settlement. Other technological advantages provide convenience, like self-service through a website, or the availability of digital auto insurance ID cards & proof of insurance. The large auto insurance companies will be more quickly adopting rating plans based on your actual driving habits and usage, such as the Progressive Snapshot program, which may mean much lower rates for you. However, technology to improve service does not mean a large auto insurance company is going to pay your claim without a hassle. Although some of the large auto insurance companies have more sophisticated rating systems, it is no guarantee of better rates. At this time, it’s still quite possible for small or regional companies to have the best rates for you.
Auto insurance coverage is very similar among companies, and many of the differences do not matter much. However, there can be the occasional significant difference affecting some customers. For auto insurance, I don’t think unusual coverage limitations are more common in large or smaller companies. To make sure your auto insurance policy doesn’t have uncommon limitations not limited by other companies, read your policy, ask your agent or company about anything that concerns you, or have it reviewed by other insurance agents.
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Is a small or big home insurance company better for you?
Like with auto insurance, large companies investing more in technology might have faster claims service. Sometimes, small companies need to coordinate with local independent claims adjusters, and take longer to review and settle your claim. However, smaller companies may be better for you in the long run.
Insurance companies love to sell auto insurance, because it’s profitable. Home Insurance, if it were in another industry, would be called a loss leader. People need it and often bundle it with auto insurance, but there are huge claims costs with property insurance, making it hard for home insurance to be profitable. Large insurance companies in particular, have reduced coverage, eliminated certain types of coverage, and are non-renewing or not selling new policies in certain areas or states, due to higher risk from expensive catastrophic damage, as caused by hurricanes, hail, tornadoes, etc. This is why Allstate no longer offers earthquake coverage. This is why there are few large national insurance companies selling home insurance in states like Florida.
Sometimes, smaller companies or regional insurance companies offer less restrictive or better home insurance coverage. It used to be unlimited replacement cost to rebuild your home (Usually called Guaranteed Replacement Cost), as long as you insure to the company’s estimate of the cost to rebuild, was the industry standard. Now, most companies do not offer it. However, Country Financial, a smaller company not available in a lot of states, still offers it on newer homes.
Conclusion
In my opinion, the size of your insurance company should not be a factor in your buying decision. It’s more important to check with small and large companies, compare their coverage, service, ratings, and price, to choose the best insurance company for you.
Does the size of your auto, home or life insurance company matter to you? Is bigger better? Comment on my facebook page. If you have questions and would like my help, I can be reached at help@smartshopyourcarinsurance.com. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.