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Professional News Articles : : ON PRACTICE MANAGEMENT by Janyce Hamilton : Assessing your insurance policies for solvency in an unpredictable market

Assessing your insurance policies for solvency in an unpredictable market

September 18, 2008

Dentist businessowners—in fact, anyone with property, casualty or life insurance—are looking at this year’s Wall Street turmoil and shaking their heads. With stocks plummeting upon news of failed or federally rescued financial institutions (Lehman Brothers and Fannie Mae, Freddie Mac) and “shotgun marriages” of banks (Countrywide Financial and Merrill Lynch force-fed to Bank of America), nearly everyone is talking about what it all means for them. Money market and mutual fund holdings for retirement can lose double-digit percentages of value on days like these. And what about insurance policies? Dentist businessowners are following the news that the “Rock of Gibraltar,” America’s largest insurance holding company, American International Group (AIG), is being saved by the Fed. The current situation serves as an opportunity to remind businessowners that now is the time to check their own policies, according to the Illinois licensed insurance agents that were contacted for this report.

Life insurance solvency

Kristopher Smith, owner of Naperville-based Midwest Life Brokerage, has the Yahoo! Finance page up on his computer and the market financial reports playing on his office TV. Mr. Smith, at one time the youngest Senior Representative in the history of CNA Insurance before starting his own brokerage, said that while the industry situation is uncertain, “The life insurance side looks to be OK. Many of the individual life insurance policies, including those under AIG, are re-insured by secondary insurers anyway.”
It is true that the insurance industry is highly regulated, but the mortgage lending arm is destabilized from bad loans. Mr. Smith said he sees the life insurance arm as conservative in its risks with a clear surplus of profit vs. liability.

“Regulators make life insurers put a portion of their income aside. It’s like when grandma gave you two bucks, she said ‘put one aside.’”

Advice given by Mr. Smith regarding checking on a life insurance policy and its company:

• Use the situation with AIG to check in with your life insurance agent about whether your policy’s holding company is AIG or one of its subsidiaries, and if so, what it means for you.
• Call a local insurance broker and have him or her check into other carriers for their ratings, or access an index or credit rating firm yourself to check the solvency and standing of your life insurance company or that of a prospective company you are considering at firms such as www.ambest.com, standardandpoors.com or moodys.com.
• Regardless of how many years you have held the same life insurance, every year or two (perhaps when mailing the premium or on your birthday), call your agent, and have a quick conversation: “Do I need to buy more? Do I need to buy less? Is this the best company?”

Sept. 15, 2008, will be remembered as the day the Dow lost 504 points, the biggest dip since September 2001. On the same day, a spokesman for the National Organization of Life and Health Insurance Guaranty Associations was quoted at MarketWatch.com as saying states’ guarantee associations are in place to help “ensure any failed institutions’ customers are protected” to the tune of $100,000 on cash withdrawal/surrender on the value of policy and at least $300,000 in death benefits, likely by policy transfer to another institution.

Property and casualty insurance solvency

In some ways, insurance makes the business world go round. Owners of dental practices buy property insurance to cover losses from structural damage, equipment replacement and liability/casualty insurance to safeguard in the event of patient or employee lawsuit. But if a company the size of AIG can face hardship, it’s scary for real estate- and business owners who are operating financially naked.

Carol Baldocchi, an Illinois licensed captive agent with Farmers Insurance, has watched market changes as an agent for 28 years. She sells mostly business- and homeowner insurance policies today, but once earned the distinctive title of highest selling agent of life insurance policies in the district. (As an aside, her partner insures Sen. Obama’s dentist’s practice.) “People might want a little reassurance about their policy—not just what it covers, but how it’s doing as a company in light of the AIG situation.”

Other suggestions to assess the solvency of your property/casualty life insurance offered by Ms. Baldocchi:

• Call your agent to ask if AIG or one of its subsidiary companies is the holding institution of your policy, and what the agent knows of the holder’s financial standing/solvency. Is the agent easy to reach (call back within 24 hours)? Once on the phone, listen to the agent’s tone of voice and ask for supporting articles or links to read to learn more. Is the insurer tapping into backup resources to cover significant losses? Has it been downgraded by a credit rating agency?
• Investigate what percentage of your insurance company’s holdings are in mortgages—“it should be proportionally a very low percentage in lending.”
• Don’t pick an insurance policy or company for your dental practice based solely on its offerings of the lowest premiums. For example, Ms. Baldocchi knows one company that always came in under its insurance competitors’ quotes by $100/year for dental practice insurance policies. Case in point: About 400 of the smallest insurance companies declared bankruptcy after Hurricane Andrew in Florida, offering dental and other business holders nothing but a “Sorry, Charlie.”
• Don’t choose a policy or company based solely on it being “the largest” or “the oldest in the business.” Said Ms. Baldocchi, “The largest insurers can afford to be arrogant toward their policyholders. For example, they canceled the policies of holders seated along the Mississippi River” - some who had been paying premiums faithfully for decades.
• Talk to another dentist. Said Ms. Baldocchi: “Go to dental meetings and ask others what company insures their practice and if they have a responsive agent, and how their experience has been when filing a claim for losses.”

Get more than one opinion on each company, as there can be situations where someone complains about getting 50 percent reimbursement on a loss, but doesn’t mention to you that they wanted lower premiums. Recalls Ms. Baldocchi, “If a dentist told me he didn’t want workers comp coverage because he only had one part-time employee, I wouldn’t write the policy. That happened to an agent who wrote a policy like that, and the part-time girl fell off a ladder and sued.”

State guaranty associations do cover property and casualty insurers that go under, according to the nonprofit organization to which guarantee associations belong, the National Conference of Insurance Guaranty Funds (www.ncigf.org), publisher of Insolvency Trends 2008. Yet, if a dentist’s property/casualty insurer goes bankrupt in Illinois, your payment by its guarantor may not be to the tune of the original coverage.

Conclusion         

Uncertain solvency in the U.S. insurance industry means dental business owners and their employees must be vigilant in assessing the economic pulse of their current policies’ holding companies. The risk of doing nothing and not changing insurers when you don’t have a loss is to find you have a contract not worth the paper upon which it was printed, let alone years of premiums. Then any losses incurred are yours and yours alone.

According to the Illinois Department of Financial and Professional Regulation’s Division of Insurance, for questions from property and casualty company policyholders whose insurers are insolvent, contact the Illlinois Guaranty Association (IGA) at 312.422.9700; for those with life and health polices from insolvent insurers, call IGA at 773.714.8050.

Janyce Hamilton is an award-winning Chicagoland freelance dental writer and editor. Send suggestions for topics to be covered, or any comments on this column, to review@cds.org.

© 2008, Chicago Dental Society