Checking a company before you buy

The complaint index

When someone complains to a state insurance department, it gets recorded. The National Association of Insurance Commissioners aggregates that nationally and publishes it free through its Consumer Information Source.

The headline number is normalised for company size, which is what makes it usable. A value of 1.00 means the company drew about the number of complaints expected for its share of the market. Above 1.00 is more than expected; below is fewer.

So 2.00 is roughly twice the complaints you would expect for a company that size, and 0.50 is about half.

Read it properly

The index has real limits, and knowing them stops you over-reading it.

• It counts complaints closed by regulators, not everyone who was unhappy
• It does not separate complaints found to have merit from those that were not
• It varies by line — a company can look different for auto than for life
• Small companies produce volatile numbers, since a handful of complaints moves it a lot
• A consistently high index across several years is the signal; one bad year is much weaker evidence

The reasons are more useful than the number

The data breaks complaints down by type — claim handling, delays, denials, policyholder service, underwriting.

An insurer whose complaints cluster around claim delays is telling you something specific about the experience you would have at the moment that matters most. That is more informative than the headline figure.

Financial strength is a different question

The complaint index measures how a company treats people. Financial strength ratings measure whether it can pay. A company can score well on one and poorly on the other.

AM Best, S&P, Moody's, Fitch and KBRA all publish ratings, generally free with registration. One thing to get right: the scales are not interchangeable. AM Best's top categories are A++ and A+, so an A from AM Best sits below its highest tier, while an A from another agency sits somewhere else entirely on that agency's scale.

A rating quoted without naming the agency that issued it is not telling you much.

When financial strength matters most

• Permanent life insurance you expect to hold for decades
• Annuities, where you are relying on payments over a long period
• Any coverage above state guaranty association limits
• Long-term care coverage
• Anything accumulating cash value

The four-minute version

Look up the complaint index for the specific line you are buying, over more than one year, and compare it against the other companies you are actually considering rather than the whole market. Then check the financial strength rating, the outlook, and when it was last affirmed.

That is it. It costs nothing and it is the only part of insurance shopping where you get objective third-party information rather than marketing.

Check the licence before anything else

Everything else on this page assumes you are dealing with a licensed insurer and a licensed producer. That is worth confirming first, because it takes about a minute and it is the check that matters most when something is wrong.

Every state insurance department maintains a lookup for companies licensed to write business there, and a separate one for individual agents and agencies. The National Association of Insurance Commissioners also runs a consumer-facing lookup that points into the state systems.

Two things to confirm: that the company is authorised in your state, and that the person selling to you holds a current licence for the line of business they are discussing. A licence issue is not a subtle warning sign - it is the end of the conversation.

How the company handles claims is the thing you are buying

Price is easy to compare and service is not, which is why almost everyone compares price. But the claim is the entire point of the product, and it is the only moment the difference between two insurers becomes visible.

The complaint index is the closest thing to an objective measure, because it is drawn from complaints actually filed with regulators rather than from marketing. Reading the reasons behind the number is where the real information is: a company with complaints about delays is telling you something different from one with complaints about how claims are settled.

Independent claims-satisfaction studies are worth a look alongside it, with the caveat that they measure recent claimants rather than the general population, and that a company can score well on service while being expensive.

Who you are actually buying from

There are several parties in a typical transaction and it is worth knowing which is which, because the questions differ.

A captive agent represents one insurer. An independent agent or brokerage can place business with several, and generally has a view on which handles particular situations well. A comparison site is usually neither - it is a lead generator, and the price shown is frequently an estimate rather than a quote.

Ask directly: which companies can you place this with, and how are you paid. Neither question is rude and both are routinely answered. Someone who will not answer the second has told you something.

The warning signs worth taking seriously

• Pressure to decide today, or a price described as expiring
• A quote given before anyone has asked what you actually own or owe
• Reluctance to put the coverage detail in writing before you pay
• A request for payment by transfer to a personal account, or in a way that leaves no record
• An agent who cannot tell you which insurer will actually carry the policy
• Any suggestion that you cancel existing cover before the new policy is confirmed in force

Read the policy before you buy, not after

You are generally entitled to see the policy wording before committing, and almost nobody asks. It is the most direct way to check whether a company is selling what it appears to be selling.

Ask for the specimen policy for the product being quoted. Read the exclusions, the duties-after-loss section and the definitions - the definitions in particular, because a term like collision, occupant or dwelling is not defined by ordinary usage but by the contract.

Where a policy has been issued, life insurance and several other products include a free look period after delivery, during which you can return it for a refund. It exists precisely so you can read the contract against what you were told, and almost nobody uses it for that.

Financial strength ratings, and what they do not tell you

Independent agencies rate insurers on their capacity to pay claims. A strong rating is genuinely reassuring on long-tail products - life insurance and annuities, where the promise may not be called on for decades.

What a financial strength rating does not measure is service. A company can be financially impeccable and slow, inflexible or difficult at claim time, and the rating will not hint at it. That is what the complaint index is for, and the two answer different questions.

State guaranty associations exist as a backstop if an insurer fails, with limits that vary by state and by product. It is worth knowing they exist and worth not treating them as a reason to ignore financial strength.

The four-minute check, in order

Confirm the company is licensed in your state and the agent holds a current licence. Look up the complaint index and read the reasons behind the number rather than only the number. Glance at financial strength, which matters most on anything long-term. Then ask to see the policy wording before you commit.

None of that requires expertise and all of it is free. It is a very small amount of work relative to what you are buying.