The Insurance Industry And the Wall Street Downturn

Though most people hear every day on the television and radio about banks failing left and right, the insurance industry is coming in a close second. In just a five day stint, insurance stocks plunged over 30%, and big players like Prudential Financial and the Hartford Financial Services Group saw loses in the upwards of 42%. So, some investors in the insurance industry are wondering if the $700 billion rescue plan will save their shares as well. And, although some insurance conglomerates are not yet in trouble, insurance analysts, like Douglas L. Meyer, warn that the worst could be yet to come.

Some of the most affected will be life insurance companies because they guarantee a specific return rate so, when losses are accrued, the companies will still be required to provide their clients with the promised rate. The Treasury provided over $85 billion to insurance heavy hitter American International Group, but consumers are concerned that, if their smaller insurance providers go bankrupt, their policies will be eliminated as well. Analysts are at work estimating what the effects on auto, home, life, and health insurance will be in this crisis and if the rescue fund will be extended to them, For those worried about their insurance companies, the Standard and Poor’s Insurer Financial Strength Ratings can help an individual predict the ability of their insurance provider to meet future financial obligations.

Auto:
While it is important to check the Standard and Poor’s Insurer Financial Strength Rating before purchasing a policy with any automobile insurance provider, every state has enacted plans that will automatically backup policies in the event that a provider claims bankruptcy. Depending on the insurance provider, the bailout plan could give your auto insurance provider the ability to stay afloat. However, smaller companies will be the most negatively affected, as state-by-state regulations will determine how much coverage will continue to be provided for a policy holder if the company fails. The Standard and Poor’s Insurer Financial Strength Rating for auto insurance companies will give consumers a better idea of the fiscal status, ranging from AAA as extremely strong to C as currently vulnerable. This goes for all types of insurance providers; however, consumers should keep in mind that ratings can change quickly due to market fluctuations.

Health:
Insurance guaranty associations in each state will support any health insurance policy holders whose company has gone belly up. However, each association determines how much coverage will be provided for claims regardless of a policy. Just as with other types, health insurance providers that are small and go bankrupt will see the most adverse effects. The bailout plan will cover conglomerates like AIG, but unconnected health insurance providers will have to rely on state regulations. If a state has to intervene, the money to support these policy holders comes from the company’s liquidation and/or other insurers in the state.

Life:
Life insurance policies fall under the same state guaranty association assistance as health. Coverage is determined by each guaranty association. However, life insurance companies are bound by their promise to provide a certain amount of return. So, if a company’s liquidation cannot pick up the tab, then the guaranty association is in place to take up the slack.

Homeowner’s Insurance:
Underwriters of homeowner’s insurance policies are under a higher amount of financial stress. However, as federal law regulates, monies to insure these homes are put in a trust and are virtually impervious to a company’s bankruptcy. Policy holders must continue to perform the duties as stated in their contract, but if followed, their policies and claims will continue to be upheld as stated in their policies. The bailout plan could assist these companies, but policy holders will be unaffected by any financial distress the company is experiencing. The only change that could take place would be if the company was dissolved, then after the length of a policy is completed, a home owner would need to seek coverage elsewhere.

Overall, while many insurance providers are suffering from devastating losses, their policy holders will be minimally, if at all, affected by financial troubles. Federal laws and state regulations prevent most of these companies from not fulfilling their obligations. However, those who are in search of a potential policy should always investigate the company’s Financial Strength Rating. No matter what, it is best to do business with a company that has a record of being financially sound.