Facts, not impressions, are important when understanding insurance costs

Which of these statements is true?

A)    Politicians are all thieves.
B)     Insurance companies don’t pay claims.
C)     Lawyers are ambulance chasers.
D)    Chuck Norris made a mistake once but it corrected itself.

Obviously, the answer is “D”. Too often, though, we accept something to be true and repeat it even though the facts are completely different.  As our business at Clark is insurance, it’s time push back on those who imply insurers are reneging on their agreements to provide property, liability or health insurance payments.

The fact is, from 2007 through 2011, insurance companies paid an average of $273 billion a year to fix or replace cars, homes and businesses as well as settle disputes of liability. That doesn’t even include the payments for health and life insurance claims. Those billions of dollars represent millions of claims and normally were paid promptly and seamlessly. Are there exceptions? Of course, but they are just that – exceptions.

How do we know claims are being paid? First, look at your own experience. Have you ever had an auto claim paid or been covered for a medical procedure? How was your experience? It probably was like that of most Americans. According to J.D. Power over 83 percent of consumers making property claims were satisfied with their experience.

Now, look at how insurance has responded to the catastrophes in the United States in recent years and the amount of money paid to policyholders for everything from damaged property to business interruption:

–         September 11 Attacks   $24 billion (2001)

–         Hurricane Katrina $72.3 billion (2005)

–         Tropical Storm Sandy $25 billion (2012)

These amounts do not even include medical claims, life insurance or liability losses.

In 2011, property/casualty insurance companies in the United States lost $35.4 billion. In 2010, the P/C industrylost $8.8 billion according to the National Association of Insurance Commissioners. In 2009, they made $900 million but the year prior, they lost $19.6 billion. If we see more weather-related losses in the years ahead, then you’ll understand why your insurance rates may go up.

Another way to gauge how much insurance companies are paying their customers when losses occur is the loss ratio. A loss ratio is the amount paid out for claims divided by the amount collected in premiums. If an insurance company paid out 100 percent of all the money they collected, their loss ratio would be 100. If they paid 10 percent more than what they collected,they would have a 110 percent loss ratio.

Those numbers don’t account for the cost of running the insurance company which is known as the expense ratio – the amount of money spent for salaries, benefits, offices, marketing, agents’ commissions, etc.divided by the amount of money collected.

For example, under the Affordable Care Act, health insurance companies must pay out at least 85 percent of the money they collect when they pool the results of all their customers with more than 50 employees. For groups under 50, insurance companies must pay on average 80 percent of the money they collect leaving themselves 20 percent to pay for expenses and profits. The law will force insurance companies to operate even more efficiently.

Is everyone perfect? No, but the standards of performance are taken very seriously by state regulators. They audit company files every three years to ensure that companies are financially capable of paying their claims and that they are abiding by the law in all aspects of their business. An independent rating organization called A.M. Best also examines the performance of insurance companies and assigns a grade. You may want to ask your insurance agent if the companies they represent have an “A” rating or better.

Ever since people banded together to share risks, the rules have become evermore complex. That’s why working with an independent insurance agent like Clark Insurance makes so much sense.