Insurance agents are often asked: what are the pros and cons of switching an insurance carrier? It is important to note that not all insurance carriers, and polices for that matter, are “equal” in what they offer their policyholders.
Just like the variety of options you have when selecting what type of power unit you are purchasing or the tires for your fleet, you have options in insurance providers. Some of the most important items to keep in mind when considering a switch from one carrier to another is their experience with your industry and the amount of premium they currently handle. A company who is just getting into the industry might incur a substantial loss and be forced to exit just as quickly as they entered, or they might not provide all of the necessary forms you need to be protected. Beyond their existing experience, one of the most important factors is the financial strength or rating of the potential carrier.
Verifying the Financial Stability of a Carrier
There are third-party companies such as A.M. Best who provide information on insurance carriers, most notably financial rankings (see Chart 1, page 42). Consider doing business with insurance companies who carry a rating of “A-VII” or better. This is not only for your protection, but for your agent as well. While there is technically nothing wrong with a carrier who possesses a rating less than “A- VII”, they simply don’t offer the peace of mind other companies with a rating of “A- VII” or higher offer. Furthermore, insurance agents purchase Errors & Omissions (E&O) insurance should a mistake be made and a lawsuit be filed. Many E&O carriers will not offer coverage to an agent/agency for insolvency if the carrier has less than a specified rating. If you are dealing with a smaller agency that is carrying minimal E&O coverage and a claim is not covered, they could go out of business and leave you holding the bag for the uncovered claim.
Anyone can gain access to the A.M. Best database by visiting www.ambest.com, registering and entering in the name of the insurance carrier in question. They will not inundate you with spam, and it can prove to be a valuable resource.
The financial ranking of an insurance carrier is based on the current review of their financial position, as well as their long-term financial outlook, etc. This is especially important since a majority of contracts with both municipalities and private companies contain a stipulation regarding not only the limits of insurance provided, but also that coverage is in place with a carrier who possesses a specific financial rating.
Insurance carriers/companies who carry a rating less than “A” (in any fashion) might get more competitive with their premiums, but in the event of a catastrophic event, such as Hurricane Katrina, in which a lesser rated carrier sustains a massive loss, the possibility of their going out of business and leaving their policy holders without coverage are greater than those with an “A” rating. In some states, there is a possibility of the carrier being backed by the state in such an event, however, this will depend on several factors including, but not limited to: the carrier’s financial rating, whether they are Admitted vs. Non- Admitted, if your state has such a policy of stepping in and picking up coverage, the conditions of which Before making any changes to your insurance carrier or agent, make sure the agents and carriers have substantial industry knowledge, experience, carrier relationships and service capabilities. 40 WasteAdvantage Magazine December 2010 As Seen In WasteAdvantage The Advantage in the Waste Industry the carrier went out of business and the amount of the claim in question. Some states also differentiate between coverage lines such as Worker’s Comp, Auto or GL.