How to make a reliable evaluation of potential insurance carriers

Financial strength should always be an important consideration when evaluating an insurance carrier’s ability to provide the most comprehensive coverage for your business, says Dawn M. Jaffray, Senior Vice President and CFO at United Fire Group (UFG Insurance).

“You’re obtaining a policy based on something that may or may not happen and you’re paying a premium for that coverage,” Jaffray says. “You need confidence that if there is a loss, fire or major catastrophe, your insurer will be there to minimize the disruption to your business.”

The inability to predict when, how or if a disaster will occur can make this a difficult question to reliably answer.

Fortunately, there are plenty of resources available to help you assess the financial strength of insurance carriers and gauge their ability to give you as the policyholder the support you need.

Smart Business spoke with Jaffray about this evaluation process and the value of building a trusting relationship with your agent and your insurance carrier.

How can you assess the financial strength of an insurance carrier?
There are a number of financial measures you can use to make an accurate assessment as to the carrier’s financial strength:

■  Third-party rating agencies, such as A.M. Best Company – These agencies provide an independent opinion on the financial strength of an insurance company.

■  Risk-based capital – This figure shows the minimum amount of capital that an insurance company is required to have to support its overall business operations.

■  Policyholder surplus – This figure shows the difference between a company’s assets and liabilities.

■  Claims reserves – A figure that shows the funds set aside for the future payment of claims that have been incurred, but not settled.

These metrics should provide tangible, substantive evidence that either a carrier is well-positioned to respond when your company runs into trouble, or it’s not. If it’s a publicly traded company, there is even more data at your disposal through the company’s required financial filings.

Through your research, you should be able to get a good sense of the carrier’s balance sheet, its assets and its approach to its investment portfolio. Focus on the areas that demonstrate the carrier’s level of financial strength and use those findings to inform your decision.

What other factors are important in the evaluation of an insurance carrier?
Stability, longevity, reputation and industry expertise are all factors that can provide you with confidence that the carrier is up to the challenge of helping your company through a loss or a catastrophe.

Look into how a carrier services its clients. Does it have a local presence, allowing you to build a more personal connection either with the carrier itself or through the agent that manages your policy?

If you’re a growing company, examine the carrier’s growth plan and its capacity to continue providing the service you need as your business expands across the country and potentially around the world. Enterprise risk management should be important to any business.

What types of proactive options are available to possibly prevent certain problems from occurring in the first place? What is the company’s approach to new liability concerns such as cyberrisk?

Find ways to get in front of potential problems before they happen. These value-added services can go a long way in maximizing the benefit of your insurance expenses and minimizing your long-term costs. Look at what value-added service the insurer can give you beyond your policy.

How important is regular dialogue with an agent or carrier?
If it’s a retail operation, the dialogue doesn’t change a lot and you may not need to talk very often. But if you’re making changes to your business such as adding warehouse space or purchasing new equipment, you may want more communication.

When you meet, ask plenty of questions. If your service providers don’t know about a problem that your company is having, they can’t help you. Be open about your company’s needs and work with your providers, and in this case your agent or insurance carrier, to develop a policy that meets your needs and protects your business. ●

Insights Insurance is brought to you by United Fire Group (UFG Insurance)