1. What Is Your Company's Expense Ratio?
Most people, including agents, don't even know what an expense ratio is
how it affects them, so allow me to explain. The expense ratio is the
every premium dollar paid that is used to cover the expenses of operating
company. It's obvious that the higher the ratio, the higher the cost of
Some of the older, big name companies have expense ratios as high as 26%,
while some newer, smaller and smarter companies have ratios in the single
Your obvious question is, "How do some companies accomplish the lower
ratios?" The answer lies in the fact that many companies have cut
to the bone through technology, reduction of personnel and, of course,
of the agency force. This will be covered in more detail in Section 5.
knowledge you receive in this book, you can purchase insurance without
aid of an agent and the difference in expense ratio will be converted
2. What Is Your Company's Current A.M. Best Rating and
Their Ratings Over the Past Three Years?
An area of utmost importance when selecting an insurance company is their
A.M. Best rating. There are several other agencies that rate insurance
besides A.M. Best and after a brief explanation of their value, I will
give their names
and telephone numbers. These rating agencies rate insurance companies
number of different areas. These include, but are not limited to, the
financial strength, quality and effectiveness of management, results of
efforts and penetration in their area of operation, quality and effectiveness
agency or direct marketing operations, and their overall ability to manage
Any company with an A.M. Best rating lower than an "A "should
no matter what the agent or company representative tells you. There are
the company was downgraded from an "A"or"A++" rating.
These reasons could
be many; ranging from an insurance company's inability to add to their
(money set aside to pay claims), the inability to grow reserves to a safe
inability to grow policies in force, or management errors.
The point I'm trying to make is if an insurance company has been rated
the "A" rating in the past three years, there is a good reason
for it. If the insurance
company regains the "A" rating after losing it and retains it
for at least three years,
chances are the problems have been corrected and it is a safe company
insurance from. The only exception to this rule is in the case of an insurance
company that has been in trouble, and has had a "cash infusion"from
company. What I mean by a "cash infusion" is that another company
to the rescue of the company in trouble. They will supply the needed cash
the financial health of the company, and make the necessary management
to correct the problems that created the downgrade initially. This is
a good indication
that the company underwent some major marketing and management restructuring
in order to secure the cash needed to operate. In such a case, you would
with the company in spite of their past.
Rating Companies Include The Following
A.M. Best Company 908-439-2200
Demotech, Inc. 614-761-8602
Duff &Phelps, Inc. 312-368-3157
Fitch Investors Service 212-908-0500
Moody's Investors Services 212-553-0377
Standard & Poors 212-208-1527
Weiss Research, Inc. 800-289-9222
NOTE: There may be a fee involved when requesting a company rating.
I realize these rating companies rate life and health insurance, as well
casualty insurance companies, but I want to supply you with as many resources
possible on this subject.
3. What Is Your Company's Complaint Ratio?
In Section 2 we discussed how the complaint ratio works, so I won't spend
great deal of time on it now, other than to say it is a vital sign of
company's ability to provide the service you are paying for. Remember,
an insurance company to have a complaint ratio of .45 or less complaints
1,000 policies in force, and avoid companies with a ratio over .80.
4. How Many Auto and Homeowner's Policies Does Your
Insurance Company Have in My State?
In general, the larger the presence of an insurance company in the state,
greater the chance of rate stability. The reason for this is with a larger
they are better equipped to handle a catastrophic loss or a series of
such losses in
an efficient manner. The other major advantage is with a greater presence
more likely to have adequate claims and customer support to handle any
may have, or any other needs that may arise. The exception to this would
company with national reputation that has recently moved into your state;
assumption being that they will be growing as their marketing efforts
Policies in force would not be an issue then.
Another consideration is if a company having been in the state five years
longer, continues to have a small policy base, low complaint ratio and
premium structure, it could be a company that will meet your needs.
5. How Long Has Your Insurance Company Been Doing
Business in My State?
If the insurance company has been doing business for five years or more
your state and all the other criteria are to your satisfaction, chances
are it is a safe
company to insure with. If the company has been in business for five years
but is new to your state, you should be aware of the following.
Many insurance companies will enter a market with artificially low rates
attract new business, as discussed earlier. Upon entering the market,
they will lose X number of dollars and consider it as part of the cost
of doing business.
Later, if not managed properly, they will become as artificially high
in their rate
structure as they were low. An indication of possible large rate adjustments
be to look at their expense ratio as discussed earlier. If their ratio
is low, 15% or
less, it is likely that their rate structure will remain attractive. However,
if the ratio is
above the 15% to 20% range, chances are they are cash flow underwriting
rates will go up. Cash flow underwriting is a term used for insurance
come into an area with artificially low rates to attract customers with
the intention of
raising rates later.
6. Who Adjusts the Claims?
This is a very important question. Some insurance companies have their
claims adjusting personnel while others use contract adjusters. There
and disadvantages to both.
Company adjusters have a tendency to look out for the best interest of
employer, the insurance company. Often, they will not be as liberal on
claim knowing they are employees of the insurance company. On the other
they know that if you, the customer, is not satisfied with the outcome,
company may lose a good customer. Therefore the adjuster, may be more
to go the extra mile to assure customer satisfaction. I've seen both scenarios
to the extreme.
Contract adjusters are not as concerned with the amount of payment made
with customer satisfaction. They work for several insurance companies
general, are not as concerned for you as a company adjuster might be.
However, many contract adjusters tend to be more liberal in adjusting
the claim because they
lack company loyalty. So, while they may not use the best public relations
they may allow more money to settle the claim. There are pros and cons
side. Provisions in the policy protect you as to what is covered and how
the claim is
to be adjusted. The end result being that you will eventually receive
a fair settlement,
no matter who adjusts the claim.
The above information is written with regard to dealing with your own
company. If you file a claim against someone else's insurance company,
no choice in the type of adjuster you will be dealing with. Filing a claim
another person's insurance company will be discussed in Section 4.
7. What Other Lines of Insurance Does Your Company
Sell in My Community?
Does the insurance company sell homeowner's insurance or excess liability
policies, life insurance or any other line of insurance you may be interested
This is important since many companies offer multi-policy discounts. For
some companies offer a discount on your auto insurance if you have your
homeowner's or a similar policy with them. These discounts can be as little
or as much as 15% to 20%. If they offer more than one line of insurance,
probable that they are committed to your area. If they were to experience
results for a period of time, as companies often do, they are less likely
from your community.
8. When Did Your Company Have Their Last Rate Increase
and What Was the Percentage of Increase?
If one or more of the major insurance companies have had a recent rate
increase, you can count on most companies following suit within six to
The percentage of that increase will vary, but it will happen.
An example of this would be if your current carrier recently had a 10%
in rates and the new company you are considering hasn't had an increase
year or more. With all coverages and usage factors rated equally, if the
company's rate is 20% lower than what you are offered for renewal with
your current company, you should assume that the company you are considering
will also have a
10% increase before your next renewal. You still have a 10% savings for
Some insurance companies are consistently lower in cost over the long
This is the type of insurance company you want to find. Also when you
remember, if your policy is not properly rated, e.g., comparable coverages,
to and from work, business or pleasure use, age of drivers, etc., your
will not be accurate. You have to compare all rating factors equally between
9. What Happens to My Rates If I Have an Accident That Is
This is a very important question to ask. The cost will vary greatly from
company to company! Overthe years, I've encountered companies that charge
small percentage for a three year period, say 10% for the vehicle involved
accident, companies that forgive the first accident and don't increase
the rates at all,
and I've also encountered companies that will charge a 50% surcharge of
the premium on all vehicles in the household! A more acceptable penalty
would be a 20% to 30% surcharge for the vehicle involved in the accident
for no more than three years. As I said, these penalties can vary greatly!
The other part of this question is, "What is the dollar limit that
For example, you are involved in a minor accident and the damage to both
vehicles was in the $1,000 range. At today's prices, $1,000 may not even
damage. The question is, "At what dollar amount of damage will the
applied to my policy?" This can vary from as little as a few hundred
forgiveness of the first accident altogether! I can't overemphasize the
of this question.
10. What Happens If I Receive One or More Traffic Citations?
This is also very important! Some insurance companies will check your
driving record every 6 to 12 months looking for traffic citations. Others
only if you have an accident or are adding another vehicle to your policy.
The potential for a surcharge based on citations varies widely between
companies to the extent that one or more citations will not have an effect
rates, or you could have surcharges for each citation. With some companies,
surcharges can add up to 50%+ of additional premium, depending on the
and type of citations! If you have a major citation such as driving while
or leaving the scene of an accident, etc., most insurance companies will
your policy or place you in a standard company at substantially higher
Obviously, the best way to avoid these problems is to drive carefully
citations. However, if you do receive one, check to see if your state
offers a driving
class you can attend which will remove the citation from your driving
class may take a Saturday away from you, but it could save you big dollars
auto insurance premiums in the future. You must realize if you are involved
accident that is your fault and you attend the driving class, the citation
will be removed
but the insurance company will still have to pay for the accident. Therefore,
rates will still be affected. Attending the class doesn't take your insurance
company off the hook!
Citation surcharges are one of the hidden and potentially high cost factors
when buying auto insurance that most people do not investigate! These
surcharges can vary widely from company to company and should not be
overlooked in the shopping process.
I can't overemphasize the value of a clean driving record! Equally important
is having a clean claims history. Insurance companies look at items such
and glass claims, or even losses that weren't your fault, as part of the
selection process. A clean claims history can make the difference between
preferred rates as opposed to standard rates.
11. Does Your Company Have a Commissioned Sales Force
and If So, Are They With or Without Sales Quotas?
Your initial reaction to this question more than likely is, "Who
no one does but it can have an effect not only on the rates you pay but
also on the
service you receive. There are several ways in which to evaluate this
If you purchase your insurance from a company that doesn't have a
commissioned sales force or agents and you deal directly with an employee
company, not only do you remove a layer of people to deal with but also
a level of
expense, reducing the cost of your policy. The idea that an agent is looking
for your best interest is no longer true to the degree it once was. The
agent of today
has very little authority to exercise his or her own judgment on your
Unfortunately, they have become mere puppets of the insurance company
extent that they can mirror only the desires of the insurance company.
This is not
true 100% of the time, but is most of the time. It's not that the agent
doesn't want to
get things done for you; he or she just can't. The days of the agent being
agent" are long past! Now they are agents of the insurance company,
for their company's best interest first and unfortunately, yours last!
The agent cannot
do anything for you that the company wouldn't do for you without the agent.
How much time do you spend each year on the phone with your agent? You
will discover that if you are an average insurance customer you probably
than one hour per year talking to your agent. If you didn't have an agent,
still spend that same amount of time talking to a company representative
phone or by direct communication on the computer. So my question to you,
insurance buyer is, "Why have an agent?" The premium savings
not having an agent are substantial, and the knowledge required to do
is fairly simple.
Many agents make six figure incomes and work less than 40 hours per
week! Who do you think supports the golf courses? Quite frankly, it's
the best part-
time job a person could have! However, in all fairness to the agents,
realize in the first five to eight years of his or her career, the agent
worked 60 to 80
hours per week to build the agency and was doing it for less money. There
is a huge
price to pay in building a successful insurance agency!
Sales Quotas, Who Cares? You Should for the Following Reasons
A company that sets sales quotas for its agency force, whether these quotas
are specific or implied should be avoided. The reason for this statement
companies will allow business to be written for the sake of meeting quotas.
will fudge on the rules or ask for exceptions that should not be granted
but are. This
adds business to the books at rates so low that the insurance companies
make a profit. Thus, it contributes to adverse selection. Adverse selection
an insurance company has business on the books they can't remove or make
profitable. You and I are paying for those money losing policies that
have been written in the first place. In most cases, adverse selection
is the result
of mismanagement. The quality customers will leave to go to other insurance
companies who have lower rates, and the money losing customers will not
be able to
change companies because of their loss history. The result is the insurance
ends up with a bad book of business that cannot be easily changed. I'm
it's impossible, but close to it.
This type of behavior will vary from company to company, but you can
altogether by not selecting an insurance company with a commissioned sales
Another thing you should be aware of is that most, if not all insurance
discriminate in customer selection. Sounds shocking but true! The industry
admit it, but I'll explain how it's done.
Assume that your underwriting situation doesn't fit the narrow guidelines
the insurance company dictates. You may have had a driver in the household
received a citation or had an accident that is chargeable and is within
the time frame
of the insurance company's concern. Therefore, you are not eligible for
rate available. This would pose a problem if you were adding a vehicle
to your policy
with the same company, or going to another insurance company altogether.
underwriting department will give exceptions at will to whoever they want,
and withhold them from whomever they wish. You might ask, "What are
the guidelines for this behavior, it doesn't make sense?" You're
right, it doesn't.
There are several things that the company looks at in evaluating your
One is, "Do you have supporting business with the company or do you
your auto insurance with them?" Giving the insurance company all
of your insurance
business is what they really want, especially your life insurance! You
could be in an
identical situation and carry life insurance with the company and they
that exception as opposed to not carrying life insurance with them and
request denied! I've seen this happen many times! In my opinion, it's
Another thing that will make a difference as to whether you get an exception
or not is your agent. If your agent has a good reputation with the insurance
or is a big life insurance producer and making money for the insurance
your request for an exception will have a better chance of being granted.
Another area is the personal judgment of the underwriter. One underwriter
may allow something that another underwriter would not allow given the
same set of
circumstances. It's all a matter of personal preference with the underwriter.
As I've pointed out, it is all arbitrary and depends on a number of things,
some of which having nothing to do with you! That is how the industry
pinned down and held accountable on any given case. Stop and think; you're
you! No matter what agent you have, which underwriter reviews your account,
whether you have additional business with the company, you and your situation
remain the same! Yet, the way the account is handled is discriminatory
insurance buyer based on personalities, favoritism toward an agent, and
The best way to avoid this type of behavior is to deal only with an insurance
company that does not have an agency force! The less people involved,
the treatment. This will enable you to buy your auto insurance at a lower
you have removed an excess level of expense and eliminated a level of
12. How Many Levels of Quota / Commission Management
If you deal with an agent and the agency force has commissioned district
regional management, the cost and bureaucracy increases.
An example would be as follows: you have an agency force that has to sell
certain number of policies or has a production quota. Then they have a
that has quotas and he has a manager who also has quotas. You now have
levels of either commission and/or production requirements that only add
to the cost
of your auto insurance, and you receive nothing for it!
Many agents and district or regional managers who are commissioned sales
people make six figure incomes after expenses. It's not that they didn't
work hard to
get where they are, they did. What I am saying is times are changing and
the insurance consumer, can learn a little and save a lot by becoming
agent. Change is coming whether we want it or not, so you may as well
and do what is needed in order to prepare for the future!
The insurance industry is working hard at changing to meet the challenges
that lay ahead, but it is like trying to turn a battleship around in a
companies have contracts with agents and managers that they cannot easily
without legal considerations. Another set of problems facing the major
the fact that they are not prepared to handle their business without the
I believe, contrary to what the industry says, if they could manage without
agent, the majority of agents would be gone tomorrow!
One major insurance company recently offered new contracts to its agency
force that would cut their commissions by approximately 33%. It is not
that they sign the new contract, but it may happen soon. This same company
reorganized its district management by reducing the number of district
and giving the remaining district managers more agents to look after.
Most of the
major insurance companies are frantically trying to reorganize and automate
order to reduce their expense ratios so they can compete. This is good
insurance consumer in the long run. To sum it up, working without an agent,
itself, should reduce your cost by as much as 15% or more.
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