How sure is your insurance?

Friday, February 20, 2009, PM | Leave Comment

The last few months, the banking industry has not been doing good, to say the least. Many consumers have been understandably preoccupied with the fate of their bankers and their banking relationships. Along with banking, there are other financial services that have been experiencing difficulty lately.

Consumers have been so busy trying to shore up their credit lines that they have almost ignored even their existence. One such industry is insurance.

The risk is that the carrier, with whom you insure your property and liability hazards, suddenly might not be able to pay your claims.

First, there was the collapse of AIG, the biggest name in insuring corporate risk. Sure, insurance experts and AIG execs were convincing in explaining that their business of property-casualty was solid as a rock, even when the giant’s financial services were on the verge of collapse.

Some risk managers even said that AIG was showing eagerness to cut prices on property-casualty insurance to hang on to their customers. They suggested that AIG action might drive prices down even lower than they have been.

Yet, even at this late date, the risk managers point out that it has become more necessary that consumers should be aware of the consequences of such a race to the bottom might be in terms of insurer solvency?

Now comes more reason for worry in the form of reports of growing shakiness at The Hartford Financial Service Group, another major handler of consumer insurance and risk management programs.

On February 12, 2009, the group lost access to the Fed’s commercial paper lending facility after recent commercial paper downgrades by Moody’s, Standard and Poor’s and Fitch and saw its shares plummet 11 percent, according to Reuters.

“As a result it will have to tap other sources of cash to repay the debt, a potential thorn as its capital had already eroded due to large losses over the past two quarters,” the news service reported.

Insurance regulators are prone to make assurances in such cases that the loss reserves of even wobbly insurers are more than adequate to pay off claims. But in today’s financial climate, it is difficult to take such assurances to the bank.

Moral of the story
Make sure that your insurance company’s finances are sound and stable and that you won’t be left stranded in the middle of nowhere.

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