insurance

Screening a new home insurance company

Highlights
  • Home insurers are pulling out of some markets, dumping customers.
  • Smaller, unknown companies are stepping in to fill the void.
  • Customers must do their homework to make sure they get good coverage.

When State Farm threatened to pull out of Florida's home insurance market a year ago, David Scott Banghart decided it was time to start looking for another provider.

But it's no easy task in Florida. Thanks to a series of recent hurricanes and tropical storms, many large property insurance companies have scaled back on writing policies in the Sunshine State and other Southern and Eastern coastal communities.

In recent years, a number of small companies have sprung up to help fill this void. The challenge for homeowners is trying to find information about these insurers.

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Banghart, a social worker from Lutz, Fla., did his homework. He checked a Web site operated by the State of Florida that compares insurance companies' rates, contacted local insurance agents, checked companies' financial ratings online and did a Google search for company news.

"It's hard to find a long-term track record in a market that just opened up" to new insurers, he says.

The experts say Banghart made the right moves. Consumers need "some assurance that a company is financially sound and will be there when you need them," says Julie Pulliam, spokeswoman for the Washington, D.C.-based American Insurance Association.

The following tips can help you learn about new insurance companies, experts say:

Make sure the company is licensed

Consumers who vet home insurance companies should contact their state insurance department (or check its Web site) to make sure the companies are licensed in the state.

To be licensed, companies must prove they have a certain amount of assets on hand to cover claims, says Elissa Boos, a personal lines team leader with McGrath Insurance Group in Sturbridge, Mass.

Licensing also ensures that if a firm eventually goes belly up, the state guaranty fund will pay the company's claims. The fund gets its money from policy holders in a state who are assessed a fee, regardless of the insurance company they use.

Peruse the complaint record

In most states, you can check online to uncover the number of complaints filed against a company, Boos says.

However, just checking raw numbers can be deceptive. It's almost inevitable that a large carrier will have more complaints than a small firm that has only been in existence for a short time.

Typical complaints about companies include slow payment of claims or poor customer service, Boos says.

There's also a Web site called Badfaithinsurance.org that invites consumers to submit their complaints or praise, says Marjorie Young, vice president of E.G. Bowman Insurance Co., a New York City insurance brokerage.

The site lists a "Hall of Fame" and "Hall of Shame."

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Check financial strength

A.M. Best and Demotech are just two of the companies that make an assessment of a home insurance company's financial strength. Bigger, older firms are more likely to be covered by A.M. Best, while Demotech is more likely to include smaller, newer firms.

Young says she would be leery of unrated companies, because there is no way to gauge their practices when it comes to paying claims.

One stumbling block when dealing with small, new firms, is that they might not have been in existence long enough to be rated.

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