disconcerting insurance company downgrade

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dodecahedron
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disconcerting insurance company downgrade

Post by dodecahedron »

Last fall, I realized that I was paying far too much for auto/home/umbrella liability insurance. I'd had an Allstate policy for over 20 years without really seriously considering alternatives. I went to an online comparison shopping website and put in basic statistics about my policies and was promptly inundated with a blizzard of offers in the mail, far too much to sift through thoughtfully.

So I contacted a local insurance agency with a good reputation and asked a rep to come up with the best deal for me. The auto/home/umbrella policy they recommended cut my total bill by over a third while offering comparable coverage.

Apparently at the time I was policy shopping, its parent company (Tower Insurance Group) had an A- minus rating from AM Best, but it turns out that that rating has been steadily revised downward over the past ten months--and it is now a C rating! The parent company is apparently seriously insolvent.

http://www.insurancejournal.com/news/na ... 339041.htm

Argh--it appears my faith in NY's stiff insurance regulations was unfounded. I don't understand how things went downhill so fast without me noticing anything until it was called to my attention this evening. There is a state insurance "fund" (which is mutual assistance from other insurers) but the whole thing sounds pretty bad. And my umbrella coverage exceeds the state insurance fund's maximum coverage.

How do I find a decent insurance company that will *stay* highly rated? I don't want to be switching insurance policies again in less than a year!
denovo
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Re: disconcerting insurance company downgrade

Post by denovo »

There's no guarantee in life except death and taxes, but....

I would look for companies with long track records one example would be well, Allstate. Allstate tends to be pricey, but along with good reputation, one important thing I look at when dealing with insurers is prompt and efficient payout when disaster strikes. Allstate has always been good on that count.
Last edited by denovo on Sun Aug 31, 2014 10:40 am, edited 1 time in total.
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Spirit Rider
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Re: disconcerting insurance company downgrade

Post by Spirit Rider »

dodecahedron wrote:How do I find a decent insurance company that will *stay* highly rated? I don't want to be switching insurance policies again in less than a year!
This is an unusual occurrence. I also, had Tower insurance. However, my agent told me before the last renewal that they had paid a disproportionate percentage of the Sandy claims. She was expecting them to be downgraded within a year. It helps to have a good agent. I have my agent do a rate and rating comparison before every renewal. I usually change when the difference is more than 10%-15%. This usually ends up being every two-three years.

I have probably switched carriers maybe 15 times and have had maybe 10 different carriers in that time. Sometimes, I end up switching back to the previous carrier after they are willing to give me the new customer rate. This recent case with Tower is the only time there has be a rating problem. Probabilities are such, that any individual carrier could get disproportionately hit in a natural disaster.

All insurance carriers (for that matter all companies with ongoing services) entice new customers at the expense of existing customers. However. unlike TV, Internet, phone, and subscription radio, I have never had success getting an insurance company to negotiate their rates. That is probably because the vast majority will stay with the same carrier year after year.

Tower and York were long term stable carriers. I would not let an anecdotal experience discourage you from using competitive quotes when shopping for insurance. In deference to the moderators stuff happens.
dhodson
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Re: disconcerting insurance company downgrade

Post by dhodson »

Ratings are backwards looking so they don't predict far into the future.

I find the weaker companies need to have cheaper rates.

For items where one can easily pick up new insurance, I don't worry much about it. For items where it might be difficult to get new insurance then it's more concerning.
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Phineas J. Whoopee
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Re: disconcerting insurance company downgrade

Post by Phineas J. Whoopee »

According to the article you linked the concern isn't with claims-paying ability, but with the ability to pay interest and principal on time to holders of senior debt.
...
A.M. Best said its revised ratings takes into consideration the Bermuda insurer and reinsurer’s recent regulatory filing that disclosed nearly $106 million in net losses over the first six months of 2014, plus shareholder’s equity of negative $11 million. The rating downgrades also “reflect the heightened uncertainty around [Tower Group’s| ability to repay its senior debt holders in the event that its pending merger with ACP RE … does not occur on or before Sept. 15, 2014,” A.M. Best said.
...
I'm not sure I'd like to buy new insurance from such a firm, but aren't the policies you mention issued year by year? Can't you change at renewal time? Occasionally, insurance companies will refund a pro-rated portion of the premiums if a person cancels early. You said you signed with them last fall. How many months are left until this fall?

It sounds to me as if you're more worried than warranted, in this instance, and for the future you can, if necessary, change insurers annually or perhaps more often. As you learned, it's helpful to shop around from time to time.

PJW
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dodecahedron
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Re: disconcerting insurance company downgrade

Post by dodecahedron »

Phineas J. Whoopee wrote:According to the article you linked the concern isn't with claims-paying ability, but with the ability to pay interest and principal on time to holders of senior debt.
...
A.M. Best said its revised ratings takes into consideration the Bermuda insurer and reinsurer’s recent regulatory filing that disclosed nearly $106 million in net losses over the first six months of 2014, plus shareholder’s equity of negative $11 million. The rating downgrades also “reflect the heightened uncertainty around [Tower Group’s| ability to repay its senior debt holders in the event that its pending merger with ACP RE … does not occur on or before Sept. 15, 2014,” A.M. Best said.
...
I'm not sure I'd like to buy new insurance from such a firm, but aren't the policies you mention issued year by year? Can't you change at renewal time? Occasionally, insurance companies will refund a pro-rated portion of the premiums if a person cancels early. You said you signed with them last fall. How many months are left until this fall?

It sounds to me as if you're more worried than warranted, in this instance.

PJW
I can indeed easily change policies at renewal time, and in fact I know I would get a prorated refund if I cancelled early. I am just trying to simplify my life and I would be happier in a set-it-and-forget-it mode where I don't have to constantly comparison shop for reasonably priced insurance from a solvent insurer in order to have peace of mind that in a disaster I would get prompt and reassuring attention and expeditious claims processing from a solvent insurance company that has the ability to meet its obligations without waiting for other insurance companies in the state to bail it out.

And it's not just this insurance policy either. I don't want to have to worry about sudden and unexpected deterioriation other insurance policies (health, long-term care, life, annuities). Insurance is for peace of mind. Buying insurance from an A- rated property and casualty company that becomes a C rated carrier and decamps to Bermuda within less than a year is not the kind of peace of mind I thought I was paying for. I thought I lived in a state that watched insurance carriers more carefully. I still can't figure out how this company's finances turned so unexpectedly sour. Yes, they were hit hard by Hurricane Sandy but that was in October 2012, didn't the ratings services take that into account prospectively before October 2013?

And what is strange is that I might never have noticed if somebody else in the state didn't decide to sue the NYS insurance regulators for letting this situation get out of hand, which made the local news. I wasn't monitoring the situation. Should I now be constantly checking the solvency of my various insurance companies?
Last edited by dodecahedron on Sun Aug 31, 2014 1:51 pm, edited 2 times in total.
denovo
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Re: disconcerting insurance company downgrade

Post by denovo »

Phineas J. Whoopee wrote:ll?

It sounds to me as if you're more worried than warranted, in this instance, and for the future you can, if necessary, change insurers annually or perhaps more often. As you learned, it's helpful to shop around from time to time.

PJW
In CA, can't speak for other states, you can cancel your auto insurance at anytime, not just renewal time, and the insurance company has to pro-rate you back the balance if you prepaid.
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pshonore
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Re: disconcerting insurance company downgrade

Post by pshonore »

denovo wrote:
Phineas J. Whoopee wrote:ll?

It sounds to me as if you're more worried than warranted, in this instance, and for the future you can, if necessary, change insurers annually or perhaps more often. As you learned, it's helpful to shop around from time to time.

PJW
In CA, can't speak for other states, you can cancel your auto insurance at anytime, not just renewal time, and the insurance company has to pro-rate you back the balance if you prepaid.
That varies by state. In most states, cancellations at the insureds request are usually done "short-rate" which allows company to recapture spent costs (like issuing the policy, underwriting etc.)

http://www.irmi.com/online/insurance-gl ... ation.aspx
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Phineas J. Whoopee
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Re: disconcerting insurance company downgrade

Post by Phineas J. Whoopee »

dodecahedron wrote:...
And what is strange is that I might never have noticed if somebody else in the state didn't decide to sue the NYS insurance regulators for letting this situation get out of hand, which made the local news. I wasn't monitoring the situation. Should I now be constantly checking the solvency of my various insurance companies?
I'm sympathetic to your situation. That said, nobody else will do it for you. If it's important to you, checking for yourself is your only option, but maybe only annually and for policies which are easily replaceable (which doesn't include such things as LTCI and life insurance). I wish insurers were more stable, but they aren't.
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dhodson
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Re: disconcerting insurance company downgrade

Post by dhodson »

dodecahedron wrote:
Phineas J. Whoopee wrote:According to the article you linked the concern isn't with claims-paying ability, but with the ability to pay interest and principal on time to holders of senior debt.
...
A.M. Best said its revised ratings takes into consideration the Bermuda insurer and reinsurer’s recent regulatory filing that disclosed nearly $106 million in net losses over the first six months of 2014, plus shareholder’s equity of negative $11 million. The rating downgrades also “reflect the heightened uncertainty around [Tower Group’s| ability to repay its senior debt holders in the event that its pending merger with ACP RE … does not occur on or before Sept. 15, 2014,” A.M. Best said.
...
I'm not sure I'd like to buy new insurance from such a firm, but aren't the policies you mention issued year by year? Can't you change at renewal time? Occasionally, insurance companies will refund a pro-rated portion of the premiums if a person cancels early. You said you signed with them last fall. How many months are left until this fall?

It sounds to me as if you're more worried than warranted, in this instance.

PJW
I can indeed easily change policies at renewal time, and in fact I know I would get a prorated refund if I cancelled early. I am just trying to simplify my life and I would be happier in a set-it-and-forget-it mode where I don't have to constantly comparison shop for reasonably priced insurance from a solvent insurer in order to have peace of mind that in a disaster I would get prompt and reassuring attention and expeditious claims processing from a solvent insurance company that has the ability to meet its obligations without waiting for other insurance companies in the state to bail it out.

And it's not just this insurance policy either. I don't want to have to worry about sudden and unexpected deterioriation other insurance policies (health, long-term care, life, annuities). Insurance is for peace of mind. Buying insurance from an A- rated property and casualty company that becomes a C rated carrier and decamps to Bermuda within less than a year is not the kind of peace of mind I thought I was paying for. I thought I lived in a state that watched insurance carriers more carefully. I still can't figure out how this company's finances turned so unexpectedly sour. Yes, they were hit hard by Hurricane Sandy but that was in October 2012, didn't the ratings services take that into account prospectively before October 2013?

And what is strange is that I might never have noticed if somebody else in the state didn't decide to sue the NYS insurance regulators for letting this situation get out of hand, which made the local news. I wasn't monitoring the situation. Should I now be constantly checking the solvency of my various insurance companies?
Unless there is something special about that story, I doubt that person will win anything and frankly i hope they dont. Thats just ridiculous that they should be held responsible for the company. The insurance company is a company. They can go out of business period. They are not owned by the state. The state via their guaranty assoc sets up safeguards up to certain limits to help reduce problems. If you buy a stock and dont watch it closely, then dont be surprised if the company goes out of business and you lose your money. In case you havent noticed many giant companies have gone down quickly before the ratings caught up with them. This is no different.
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dodecahedron
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Re: disconcerting insurance company downgrade

Post by dodecahedron »

Phineas J. Whoopee wrote:
dodecahedron wrote:...
And what is strange is that I might never have noticed if somebody else in the state didn't decide to sue the NYS insurance regulators for letting this situation get out of hand, which made the local news. I wasn't monitoring the situation. Should I now be constantly checking the solvency of my various insurance companies?
I'm sympathetic to your situation. That said, nobody else will do it for you. If it's important to you, checking for yourself is your only option, but maybe only annually and for policies which are easily replaceable (which doesn't include such things as LTCI and life insurance). I wish insurers were more stable, but they aren't.
PJW
Indeed, what really concerns me is the position of far more vulnerable people (like frail elderly who don't have easy access to monitor financial news and who may not have the liquidity to deal with disasters themselves as a last resort while waiting for the state insurance department to back things up.)

I suppose monitoring the financial condition and performance of insurance carriers is something I could reasonably delegate to a financial advisor when I get older. I am feeling rather disappointed that my insurance representative (a longtime family friend) who has been regular touch with me throughout the year about other insurance issues (i.e., adding a driver to the policy, updating for a discount after passage of a defensive driving class,etc.) did not notify me of this. Maybe from his perspective, the company is doing fine in meeting its claims processing obligations. In fact, I wonder if his agency even monitors for financial soundness. It has been something of an article of faith in the past that NYS has zealous insurance regulators who can be relied on to keep insurance companies sound.
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Re: disconcerting insurance company downgrade

Post by steadyeddy »

If I wanted to set it and forget it, I would probably look at Chubb, Travelers, Zurich, and Firemans Fund. Each have conservative underwriting, strong balance sheets, and relatively conservative investment portfolios. They are unlikely to be your cheapest option, and they will probably be significantly more expensive than competitors if you have had claims. That speaks to the conservative underwriting I suppose.

I would not reccomend putting your P&C insurance on autopilot. One hour of your time shopping every three years will save you a huge amount of money over your lifetime.
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Re: disconcerting insurance company downgrade

Post by dodecahedron »

dhodson wrote:
dodecahedron wrote:
And what is strange is that I might never have noticed if somebody else in the state didn't decide to sue the NYS insurance regulators for letting this situation get out of hand, which made the local news. I wasn't monitoring the situation. Should I now be constantly checking the solvency of my various insurance companies?
Unless there is something special about that story, I doubt that person will win anything and frankly i hope they dont. Thats just ridiculous that they should be held responsible for the company. The insurance company is a company. They can go out of business period. They are not owned by the state. The state via their guaranty assoc sets up safeguards up to certain limits to help reduce problems. If you buy a stock and dont watch it closely, then dont be surprised if the company goes out of business and you lose your money. In case you havent noticed many giant companies have gone down quickly before the ratings caught up with them. This is no different.
Well, the story is not about an individual consumer suing. It is about the owner of another insurance agency that somehow partnered with Tower and got burned. And the plaintiff has hired a big name attorney--a former NY Attorney General, to represent him in the case.
Albany Times Union wrote:DFS [NYs agency that regulates insurance carriers] is now the subject of a lawsuit by Robert Berman, a Catskills native who founded Upper Hudson National Insurance Co., a small insurance business that partnered with Tower. Berman blames the state agency for not properly examining Tower's books. The suit claims the state could have taken steps before Tower suffered hundreds of millions in losses.

Berman is represented by former Attorney General Dennis Vacco, who filed the suit in state Supreme Court in Albany County in April.

"What they're hiding is the fact they were asleep regarding the meltdown of Tower," Vacco said of DFS. "They're going to defend that to the hilt, because that is a billion dollars of exposure and loss of shareholder value on their watch."
http://www.timesunion.com/local/article ... 709744.php
Last edited by dodecahedron on Sun Aug 31, 2014 2:47 pm, edited 2 times in total.
lululu
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Re: disconcerting insurance company downgrade

Post by lululu »

Amica:

http://www3.ambest.com/ratings/entities ... 2&AltSrc=3

A++superior from AMBest. I am a customer and I have never heard anyone say a bad word about this company.
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Re: disconcerting insurance company downgrade

Post by dhodson »

Well then id say they shouldnt have a case at all. The assoc is supposed to protect consumers not do the job of a company looking to partner with this insurance company. They need to do their own due diligence and not pretend its the job of the state to help them make money. Looks like they didnt know what they were investing in and now want someone else to take the blame.
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Re: disconcerting insurance company downgrade

Post by dodecahedron »

dhodson wrote:Well then id say they shouldnt have a case at all. The assoc is supposed to protect consumers not do the job of a company looking to partner with this insurance company. They need to do their own due diligence and not pretend its the job of the state to help them make money. Looks like they didnt know what they were investing in and now want someone else to take the blame.
I agree. Insurance at this point seems like a morass. I am definitely leaning in the direction of switching to one of the well-known established companies posters have mentioned above with a reputation for conservatism and good service (Chubb, Amica) and hoping that they will have appropriate incentives to live up to their reputations, given what is at stake if they don't.

I certainly don't understand how an individual consumer can be expected to navigate through the opaque financial statements released by insurance companies.
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Re: disconcerting insurance company downgrade

Post by dhodson »

you cant which is actually the same for most company statements.
No matter what you do, its really hard to predict far into the future.
I think your strategy will work just fine in the short run. But if you expect it to protect you decades into the future then id say it just wont do that.
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Re: disconcerting insurance company downgrade

Post by Alan S. »

Insurance companies writing property insurance all have a catastrophe model for each type of natural disaster, and hurricane is the most significant of these. The model is based on potential maximum damage estimates is relation to the surplus of the insurance company, and the damage is controlled by limiting policies in certain disaster prone areas and purchasing catastrophe insurance from reinsurers as appropriate. Since nature is not always predictable as illustrated by Sandy, even companies that judiciously analyzed their hurricane exposure were financially damaged by that storm.

There may be blame passed around between the Ins Commissioner, agents, companies and attorneys looking for a bonanza, but the public will have a difficult time sifting through the facts. Chances are, it was much more a natural disaster than a planning or execution failure.

You cannot hope to locate a coverage plan that you can just put on automatic pilot, because even without natural disasters companies often flow between being competitive and uncompetitive. Such things as fed interest rate policy can even affect rates because companies invest their surplus conservatively and that means mostly bonds, which have been yielding very little.

In summary, you should select an agent with a good reputation and let the agent select the companies unless you feel confident enough about insurance to use direct writing carriers, check their AM Best rating and get the quotes yourself. I would not overreact to specific company financial impairment from Hurricane Sandy as something you will have to face frequently, but it is best to move your business to another carrier upon your upcoming renewal date.
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Re: disconcerting insurance company downgrade

Post by dodecahedron »

Alan S. wrote: In summary, you should select an agent with a good reputation and let the agent select the companies unless you feel confident enough about insurance to use direct writing carriers, check their AM Best rating and get the quotes yourself. I would not overreact to specific company financial impairment from Hurricane Sandy as something you will have to face frequently, but it is best to move your business to another carrier upon your upcoming renewal date.
Well, as it turns out, I do have an insurance agency with a great reputation (locally owned business that has been around for over a century and the insurance account I deal with is a former student of mine, who is smart and extremely ethical.)

I emailed him my concerns over the weekend and got a prompt and reassuring reply first thing this morning. It turns out that the newspaper article did not make clear the relationship between my insurance company and its so-called "parent company" Tower. In fact, my insurance company is a reciprocal insurance company (something like a mutual but with better tax treatment, apparently) and Tower can't touch its finances. My insurance company simply contracts with Tower for management services (claims handling, etc.) Although my insurance company is apparently too small to be rated by AM Best, it maintains an A rating from another insurance rating service called Demotech.

As far as Hurricane Sandy, apparently that had little to do with Tower's downgrade (though I am sure it didn't help). The first Tower downgrade last October was attributed primarily to adverse experiences in their workers comp line, commercial auto, and liability claims during "accident years 2009 through 2011." (This would have been prior to Hurricane Sandy!)

Apparently it takes a long time for raters to catch up to bad news.
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